Household Debt in Canada – A Constant Threat to Canadian Economy
Statistics reveal that in Canada households are even in more debt than anyone can imagine. In Canada at present growth rate of debt is increasing with the lapse of time similar to that in U.S. prior to their housing burst.
Different kinds of household loans prevailing in Canada: Today housing boom in Canada cannot be sustained. The growth rate of debt is increasing every year. Since 2002 the rate is increasing with the passing of time. In 1994 debt levels were greater than incomes. In 2009 it was 148% of the income. According to latest reports an average Canadian family owes more than it earns. Such debts include mortgage loans, student loans, credit card loans; etc.The total debt-to-income ratio of Canadian households is rising.
Statistics further reveal that old Canadians have less debt than young ones. The younger generation prefers to opt for loan in order to make their lives more comfortable and spend the rest of their lives repaying the same.
In Canada lone families with children have highest debt-to-asset ratio. Presently Canadians have more assets than previously thought. But Canadian households need housing corrections more than ever before.
Reasons for increasing rate of Housing Debt: There are many reasons for increasing rate of household debt. Factors like increased household income, increased competition etc. lead to such hike in rate of household debt. Falling rates of interest and increased household have led to encourage Canadians to take more loans. Though mortgage rules have been tightened than before still they are becoming more popular due to low rate of interest.
Current position: The household debt rate continued to raise high in the first half of 2012.At the peak of U.S. Housing bubble, U.S. household debt-to- income was close to 170%.In Canada at present the ratio is around 162% that is close to that of U.S. The debt growth graph looks similar to the U.S. experience just prior to their housing bust.
Threat to economy: Household debt is viewed as the biggest threat to the Canadian economy. Data points to restrain such growth of debt for which the country’s economy is at stake. The Bank of Canada has repeatedly warned that the household debt is a threat to the financial stability of Canada.