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It’s the financial “achievement” no one wants to have, but Canadians keep setting new records when it comes to the size of their household debt. And, as of the last quarter of 2018, they did so again.
The most recent release of “Mortgage and Consumer Credit Trends” issued by the Canada Mortgage and Housing Corporation shows that the debt-to-income ratio of Canadians reached 178.5% as of the fourth quarter of 2018. In other words, Canadian households were carrying, on average, $1.78 in debt for every $1 of household income. Just fifteen years previously, in 2005, Canadians held less than $1 of debt for every dollar of household income — the debt to household income ratio was then 93%.
The figures published by CMHC for 2018 are of particular interest, as new rules designed to rein in excessive mortgage lending took effect in April of that year. It’s not surprising, then, that the figures show that mortgage activity during the year slowed. Of greater concern is the fact that non-mortgage borrowing by mortgage holders has accelerated, as average balances for credit cards and lines of credit held by such mortgage-holders grew at a faster pace in 2018 than they had in 2017. That trend was particularly apparent when it came to mortgage holders in Toronto and Vancouver, the two most expensive housing markets in the country.
The other group for whom the debt statistics are notable are those aged 55 and older. The CMHC report notes that the share of mortgage holders aged 55 or older continued to grow during 2018. In addition, mortgage delinquency rates for those aged 65 and older have been increasing — that age group has had, since late 2015, the highest mortgage delinquency rate.
For most Canadians, the size of their overall debt load is, on a day-to-day basis, likekly less significant than the monthly cost of servicing that debt out of current cash flow. Unfortunately, the news in that respect was also not good. As reported by CMHC “average monthly obligations per consumer increased by 4.5% in the fourth quarter of 2018 compared to a year earlier. Over the same period average disposable income rose by 2.5%. Therefore, for the average Canadian, the monthly obligation burden has increased from last year relative to their income”. That’s especially not good news for older Canadians, many of whom are retired or semi-retired, with limited ability to generate the additional income to meet higher debt-servicing costs.
If there is good news in the CMHC report, it’s that despite high levels, loan delinquency rates, including mortgage delinquency rates, remain low. It seems that, despite ever-increasing debt loads, most Canadians are still managing to keep their lines of credit, car loans, and credit cards in good standing.
The full CMCH report can be found on the Agency’s website at https://www.cmhc-schl.gc.ca/en/housing-observer-online/2019-housing-observer/mortgage-consumer-credit-trends-q4-2018.
The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.