FOR THE FIRST TIME EVER, CANADA’S HOUSEHOLD DEBT EXCEEDS NATIONAL GDP

Money is, and has been for some time now, incredibly cheap

January 16, 2017

On September 15, 2016 the Financial Post reported that a new record household debt level has been recorded, and that households now owe $1.68 for every dollar of disposable income.

A lot of people just don’t have much discipline when it comes to controlling their spending.  Money is, and has been for some time now, incredibly cheap, and many are borrowing on the basis that interest only is required to meet their obligations.  Combine that with the fact that house prices have increased dramatically over the last number of years, resulting in ever increasing home equity line of credit possibilities.  The result is what we are looking at now.

And it’s not so much the numbers per se as it is the trend of those numbers.  For example, the level of debt held by Canadians has now risen to 100.5% of GDP, up from 98.7% in the previous quarter.  That’s an annualized increase of over 7%.  Statistics Canada also reported that the ratio of debt to disposable income rose from 165.2% to 167.6% in the second quarter of 2016.  Net worth of households increased by 1.9% in the second quarter, but that was largely the result of continuing significant gains in real estate values.

The Statistics Canada numbers were released just after the Bank of Canada cautioned that historic growth in consumer debt, fueled by record low interest rates, would eventually become unsustainable.  Given the current economic climate, it would seem unlikely that interest rates will be moving much to the upside.  In fact, the current low levels may continue for some time to come.  If that is in fact the case, then these historically high debt levels can still be financed.  It is looking more and more like the consumer debt tail may be  wagging the central bank dog.

Howard Goodman
President, HG Partners Limited
Director, Private Client Group &
Senior Financial Advisor,
HollisWealth Advisory Services Inc.

This article was prepared solely by Howard Goodman who is a registered representative of HollisWealth Advisory Services Inc. (a member of the Mutual Fund Dealers Association of Canada and the MFDA Investor Protection Corporation).  The views and opinions, including any recommendations, expressed in this article are those of Howard Goodman alone and they are not those of HollisWealth Advisory Services Inc.

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HG Partners Limited is an independent company. Scotiabank companies have no liability for activities outside of HollisWealth.