The newest stats that are coming out concerning the amount of debt Canadians carrying are somewhat confusing, but they do all point to good news in the end.
During the first quarter of this year we managed to hit a new record high for the amount of debt we have, with a debt-to-income ratio of 152 per cent. However, the rate at which we’re taking on that debt is slowing, and analysts expect it to continue to slow. In addition to that, it seems we’re being smarter about what kind of debt we take on; our consumer and credit card debt is being reduced, while the amount we take on in mortgages and HELOCs is increasing. The bottom line? According to analysts from just about every major bank in Canada, we are currently not taking on as much debt as we once were, and those stats are expected to drop even further in the next coming years.
Richard Goyder, vice-president of personal lending at RBC said about the slowing debt, “We’ve seen it on the mortgage end and the non-mortgage side as well. So I think Canadians are paying attention to the messages that are out there and they are taking steps to make sure their debt loads are manageable.”
Senior economist Michael Gregory at BMO Capital Markets agrees, with the exception that we’re taking on less mortgage debt. “The fact is Canadians have started to cut back on credit card debt and other kinds of loan debt, except for mortgages, cutting back in terms of slowing the rate of accumulation,” he said.
Craig Alexander, chief economist at TD Bank Financial Group not only agreed, but also stated that unemployment would not be a big factor when interest rates inevitably rise. Mr. Alexander said that only a very few people would be affected so greatly that they would default on their mortgages. He also echoed recent sentiments by the Bank of Canada that the housing market will see a correction in the next few years.
“When you add it all up, it would suggest that consumer borrowing is going to continue to moderate,” said Mr. Alexander. “I expect household debt growth to continue to slow and I expect Canadian real estate to continue to cool and I think ultimately we will see a 10-15 per cent adjustment in Canadian home prices but over the next several years.”
Mr. Alexander believes that stricter rules on mortgage insurance and home equity loans are one reason why the rate at which we’re accumulating debt is slowing.