Disturbing Trend? 2017 Q2 Saw Canadian Debt-to-Disposable Income Load Rise

Published September 25, 2017 by Real Estate Leads

Rising house sales conceptThe term ‘house poor’ is one that nearly everyone will know, as it’s been put out there en masse in reference to the way in which a large number of Canadians have a disproportionately large percentage of their monthly income dedicated to mortgage payments and the like. With that much debt, they’re quite often is position where they’re affording the roof over their heads, and not much else.

Disposable income is entirely a foreign term for these folks, and it seems like there’s ever greater numbers of them these days.

Here at Real Estate Leads, we’ve been pleased to see our online lead generation system for realtors a great success, and we further enjoy sharing perspective on the subject that pertains to everyone who’ll visit here – buying or selling a home. And this particular subject – the debt to disposable income load for Canadians and the fact the numbers are constantly rising – is definitely one to have a long look at.

Statistics Canada latest findings announced that the amount Canadians owed compared with their disposable income climbed higher over the second quarter of this year.

Household credit market debt in Canada – as a proportion of household disposable income- increased to 167.8 per cent, which is a staggering jump of 166.6 %in the first quarter. To put that in layman’s terms, for every dollar of household disposable income, the individual is carrying $1.68 in credit market debt on average.

This increase in the debt ratio arrived just as household net worth on a per capita basis fell by an average of $1,300, down to $285,900. Over that same period household income increased by 1.2%, paralleled by household credit market debt rising 1.9%.

The general consensus is that a decline in household net worth that coincides with a sharp increase in consumer credit growth indicates that the ability of households to absorb higher interest rates is diminishing, and quite significantly at that.

Further troubling is that overall household credit market debt, including consumer credit, mortgage and non-mortgage loans, came out to a total of nearly $2.08 trillion over this time period. Mortgage debt increased 1.6% to $1.36 trillion, while consumer credit levels went up by 2.4% to $609.6 billion.

Ideally – and intelligently – increased mortgage debt should be countered by decreasing consumer debt levels, not the other way around. And keep in mind as well that household indebtedness poses a significant risk to the economic health of the country. This is particularly true in regions that have greater sensitivity to higher interest rates, like B.C. and Ontario.

Experts agree that the forecast is one where the ‘spending environment’ (and not just for consumers, businesses and governments too) will be much more of a challenge in the fact of recent interest rate hikes instituted by the Bank of Canada. We can expect further deterioration in the debt service ratio in the coming quarters it would seem, and that in itself has the potential for major repercussions in the housing market.

Naturally, a healthy and active housing market is of great benefit to those of you who are realtors. Sign up with Real Estate Leads here and supercharge your prospecting efforts with qualified online-generated buyer and seller leads delivered to you exclusively for your exclusive region of the country. Take the opportunities they provide for you and turn them into clients!