Whether it’s the debt or the deficit there has been a ton of talk recently about the amount of debt we as Canadians continue to pile on. And while our household debt levels have been waning slightly over the last several months, it’s still at an all-time high and a huge concern to policymakers. What might be even more alarming however is recent data from Ipsos Canada which shows that one in ten families are considered to be “highly indebted.”
The term “highly indebted” is used by the Bank of Canada to recognize households that have debt amounting to 250 per cent or more of their gross income. By the end of last year, that number had also reached an alarming high, at 13.5 per cent of Canadian households holding nearly three times as much debt as they had in income. This year, Ipsos shows that we’ve brought that down to 11.4 per cent, as their chart indicates, but it’s still a very high number that the Bank of Canada has been especially concerned about.
Last month Deputy Governor at the Bank of Canada, Timothy Lane, said that household imbalances still remain the biggest domestic risk to the Canadian economy, and that while there has been a slight downturn recently, policymakers are still “watching very closely.”
However, Ipsos isn’t so concerned about the growth of the numbers. They also indicate that much of the debt Canadians have is tied up in real estate, and so as long as that market remains healthy, so will the household budget of these families.
“Looking at these figures one would think Canadians are accumulating debt at an alarming rate,” says Michael Hsu, vice president at Ipsos in Toronto. “Still, most of the debt Canadians are accumulating is going into real estate and right now the real estate market is holding up quite nicely.”
That does certainly seem to be the case when you look at the graph and see that our debt really started to climb in 2009, right after interest rates were dropped to historic lows and people started eating up real estate like portfolio candy. Now that the mortgage rules have been changed four times in four years, the chart shows that our debt is start to decrease slightly.
Coincidence? We didn’t think so, and neither apparently does Ipsos.