“Stat after stat confirms Canada’s debt risk. Surging home prices are the number-one issue – the average Toronto home costs nearly 10 times Toronto’s median household income – but there’s also a growing proclivity to spend. Take car loans, for example. Over half are now seven-plus years, with some up to 10 years – on a depreciating asset!
Mortgage carrying costs are comparable to 1988, but the ability of borrowers to withstand unemployment or rate spikes is worse. That said, none of this justifies over-tightening mortgage regulations on everyone or undermining mortgage competition, which is what regulators have done.”
“More Canadian families are at their debt limit now than ever in the past. But how to approach the problem? Increased mandatory financial literacy is required: multiple semesters in high school, public service ads in the media.
With mortgages, we need better policy. The qualifying rate makes sense – except for renewals and transfers – but increasing capital requirements and limiting bulk coverage at the mortgage insurers is dumb because lower rates always help consumers. Mortgage debt provides a roof over Canadians’ heads; keeping mortgage rates low is the right government policy.”
“Canada is nearing the end of the latest economic cycle, and we need to look at ways to de-leverage ourselves to help weather the change.
The Bank for International Settlements and the OECD recently identified Canada as one of the top three nations at risk of a banking crisis based on several indicators, including household debt. Even though Stats Canada has come out lately with some positive news on consumer spending habits and lower quarterly debt levels, other factors such as tariffs, crossborder trade wars and rising interest rates could see Canadians biting off more debt than they can chew.”