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Household Debt Reaches All-Time High

16 March 2013

Yep, it’s that same old story again. Our household debt is higher than it’s ever been, and while the Bank of Canada is taking the time to congratulate us on the fact that the amount of our credit accumulation is stabilizing, it can’t be denied that it’s still climbing-  even if it’s at a slower pace.

Data revealed by Stats Canada on Friday showed that the average household debt is at $164.97, a slight increase from what it was the previous quarter, $164.70. And, what most people are worried about, only a few percentage points below where the U.S. stood just before their housing collapse. While this is an increase, it’s still the slowest pace debt has climbed in a year. That, combined with the fact that over the same period of time, household net worth grew by 1.4 per cent, due to gains in pensions and stock  holdings.

It was earlier this month when they announced that interest rates would remain where they are for the time-being, that the Bank of Canada stated that they’re not as concerned about household debt as they once were, saying that “a more constructive evolution of imbalances in the household sector, residential investment is expected to decline further from historically high levels.”

Much of the reason why household debt levels are stabilizing is due to the fact that Finance Minister Jim Flaherty imposed much stricter lending guidelines on mortgages last summer. That has helped stop the binge-buying of homes across the country, as has been shown in nearly all the numbers coming out from the housing market since those rules were tightened.

But not everyone is so encouraged by the fact that we’re taking on less debt.

“I wouldn’t want to bank on one or two quarters’ data, so it’s a little early to declare victory,” says Doug Porter, chief economist at Bank of Montreal. “The reality is that almost whatever measure you look at, household debt is still up about three per cent from what it was a year ago.”

But it might be too early to determine whether our pace of growth is really slowing or not. After all, the months that are being used to compare data right now are from months that typically see lower spending anyway. And some think that we won’t really know where we stand until the spring market really gets into full swing. And there’s also the fact that interest rates are going to go up sometime in the near future.

“With the low interest rate environment, there’s always the risk that debt could grow faster than incomes in the future,” he said.

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