Yet another dose of good news for those who are extremely concerned about our debt in Canada – it seems as though Canadians may be experiencing “debt fatigue.” And one economist on Bay Street has the stats to prove it.
It was Benjamin Talk who released a report on Wednesday showing that our debt is coming down and that instead of worrying so much about debt, we should take another look at what it’s actually doing. “We’re so concerned talking about the level of debt, we haven’t noticed that recently, it’s slowing down dramatically,” he wrote in his note. “It’s moving in the right direction.”
First, the bad kind of debt – consumer debt. Household credit, which includes things like personal loans, auto loans, and credit cards (but not Ottawa mortgages) is currently growing at an annual rate of about 2%, and it’s slightly lower than it was last year at this time. Compare that growth rate with the 10% it was just four years ago; and the fact that the 2% is the slowest Canada has seen since the early 90s, and it’s clear that we’re starting to do some things right.
Now onto the good kind of debt – including mortgages and second mortgages. That debt is growing at a current rate of 5%, and that’s also the lowest we’ve seen in years – since 2002, in fact.
These figures, says Tal, show that when interest rates do rise, Canadians will be able to handle the costs. He also pointed out that when that happens, he expects to see some changes in consumer spending, but does not think it will lead to a large increase in loan defaults or personal bankruptcies.
“The fact that we’re actually slowing the rate at which we’re accumulating debt, and in fact it’s possible even that we are starting to de-leverage, especially in credit cards, you’ll see a situation in which we’re more ready for the eventual increase in interest rates,” Tal said in his report.
While Tal’s report is a bit more optimistic, it does fall in line with what Francis Fong, TD Economist, said in a separate report this week. Fong agreed that “some preliminary signs that Canadians have begun to hunker down and/or protect themselves from interest rate increases.” However, Fong also pointed to the “significant minority of Canadian households [that] will be at risk when this occurs.”
