Record Household Debt Could Be Canada's Undoing

Record Household Debt Could Be Canada's Undoing
The very thing that lifted the economy from the depths of the recession — Canadians’ passion for owning a home — could also be its undoing, warns the chief economist for RBC Global Asset Management. Central to Eric Lascelles’ concern is that the availability of cheap credit has driven household debt levels to record highs and soon-to-be-rising interest rates will bear a “palpable” impact on individuals as well as the broader economy.“The very source of Canada’s relative success during the worst of the credit crunch — a banking sector that kept on lending and households that kept on buying — could yet spell its undoing if newly enlarged household debt loads prove too onerous to bear,” Mr. Lascelles says in a report issued Tuesday.

Canada House Prices vs Rent 1980-2010

A Case For Renting

Canada's Income Gap Widens

Canada's Income Gap Widens
The income gap between rich and poor in Canada widened in the period from 1993 to 2009, the Conference Board of Canada reported Wednesday. The richest Canadians increased their share of total national income while the poor and those with middle incomes saw their portions shrink, according to the board's analysis, entitled "How Canada Performs." Incomes of the poor increased marginally in the period, it said, but the gap between rich and poor widened. The average income of the poorest Canadians rose from $12,400 in 1976 to $14,500 in 2009....The average income in 1976 was $51,100. By 2009, it had increased by 17 per cent to $59,700, even after adjusting for inflation.But using the measure of median income, which divides the sample into two equal parts and better reflects how the majority of people are doing, the growth was only 5.5 per cent.

Is Gold Money

TD Warns, House Prices To Fall

Home Prices To Fall, TD Warns
The average price of a resale home in Canada will fall by more than 10 per cent over the next couple of years, an analysis by TD Economics predicted Wednesday. Calling it a "moderate correction," the report's authors also say sales will decline by more than 15 per cent over the same period."A combination of more subdued job and household income growth, rising interest rates, the recent tightening in borrowing rules for insured mortgages and fewer first time home buyers are expected to be the chief culprits behind the slowdown," the report said. TD economists profiled 12 urban markets across the country. They highlighted Vancouver and Toronto — currently the two most expensive housing markets in Canada — as the cities most vulnerable to a larger-than-average decline, "reflecting in part their exposure to the condominium segment, which appears particularly ripe for a correction."

TD Report

Canadian Debt Hits Record High

Canada Household Debt Rises
Canadian household debt hit a fresh high as consumers continued to borrow at a faster rate than their wages grew—heightening a key vulnerability of the country's otherwise healthy-looking economy. Economists, as well as the nation's central bank, have increasingly warned against rising household debt, as Canadians borrow at a healthier clip than even their typically more profligate American neighbors. U.S. borrowers have recently reined in their own debt after a deep recession and housing-market bust there. Canadians, meanwhile, have binged on debt, encouraged by mostly rising home prices, low interest rates and economic-growth prospects that are among the best in the Group of Seven. The quarterly ratio of household credit debt—incorporating mortgages and consumer loans—to disposable income hit 147.3% in the January-to-March period, up from 146.2% in the preceding quarter, according to Statistics Canada data released Monday. That's the highest level since the agency began keeping these figures, dating back to 1990. It is also up sharply from just four years ago, when the figure was 127%.

Canada's Bubble About to Burst
The London-based research firm Capital Economics Ltd. has added a new spark to Canada's housing debate with its assessment that the country's real estate market is a bubble that is about to pop. The boom in Canadian real estate has "resulted in the largest rises in house prices ever seen in Canada," the firm says. "And the trigger of an increase in the Bank of Canada's trendsetting interest rates could result in a 25-per-cent drop in property values," it adds. The organization released the research earlier this year in a report for its subscribers, and it received new currency from Bank of Canada Governor Mark Carney's statement, given earlier this week, warning Canadians that they should expect real estate prices to begin to moderate. However, while Carney did not use the word bubble, Capital markets wasn't shy about doing so.