The third quarter of this year saw another alarming rise in Canadian household debt reaching record levels. One of the main policy objectives currently is to limit the risks in a collapse in the Canadian real estate sector, which is looking a distinct possibility.
The latest figures suggest that credit market debt, which includes mortgages is now up to just under 164% of net income, nearly a whole percentage point higher than the previous quarter. Fortunately two other key indicators – the ratio of debt to assets and debts to net worth stayed relatively unchanged at 17% and 20.5% respectively, these figures have remained fairly consistent over the last couple of years.
There are real concerns that many families are taking unsustainable risks in order to buy homes especially in the high price areas like Toronto and Vancouver. The Government has responded by tightening mortgage lending requirements in it’s semi-annual financial review. It’s happening at a time when the cost of borrowing has dropped increasing people’s tendency to take on more debt.
However the most telling fact is the simple statement that Canadians owe almost $1.64 for every $1 of disposable income that they earned in the third quarter of this year. This has been confirmed by the National Statistics Agency this week.
There are lots of positive signs though, for instance income generation and business outlook seems positive with the Canadian economy seemingly weathering the economic turmoil better than most countries. Looking at independant economic reports particularly from foreign news stations like the BBC iPlayer (access here by proxy), all seem to point to a gentle recovery with the high property prices expected to stabilise in the near future.
Obviously raising interest rates would dampen down this rise in consumer credit and possibly reduce property prices too, however this is generally seen as a risky tactic in times of low economic growth and recession. The Government is hoping to keep stimulating growth and Canada has a particularly important digital market. Many entrepreneurs are basing themselves in Canada in order to run North American related digital businesses like the company who market this video making software.