Monday, December 13, 2010

Canadian Debt to Income Surpass Americans

Canadians' debt-to-income ratio now higher than Americans
Canadians’ debt-to-income ratio is now higher than Americans’ for the first time in a dozen years, leaving policy makers with a dilemma: Rein in spending and risk hampering the recovery, or do nothing and risk a cascading financial failure....The ratio of household debt-to-disposable income reached the highest on record in the third quarter, at 148.1 per cent, Statistics Canada said Monday, a 6.7 per cent rise in Canadian household obligations from a year ago. The ratio tops the 147.2-per-cent ratio in the United States and comes as incomes fell 1.5 per cent during the same three-month period.

It’s time for Ottawa to crack the whip on borrowers
It’s time for an intervention. Canadians are unable to shake their enslavement to debt, and our banks are unable to stop themselves from supplying the goods. Warnings to stop living beyond our means from mom and dad, in the form of Bank of Canada Governor Mark Carney, aren’t making much of an impression.

Analysts fret over housing, want to hear from Carney
The Scotia Capital economists noted that the home ownership rate in Canada is at a record high of about 70 per cent - that's a bit more than the peak in the United States. Home prices are also at record levels and the market is overvalued, while the debt-to-income ratio sits at 145 per cent, which is "not terribly lower than a properly defined U.S. comparison." The ratio of debt to assets, meanwhile, is the second-highest in the G7.

Ottawa, banks discuss measures to rein in Canadians’ personal debt
Ottawa is talking to the banks about putting new measures to curb the rise in consumer debt into the next federal budget. Deputy finance minister Michael Horgan has broached the topic in prebudget consultations with executives from Bay Street firms, sources say. Several bankers have told him that they would support further federal moves to cool the mortgage market, including cutting the maximum term of mortgages or increasing the minimum down payment.

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