Wednesday, July 6, 2011

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.

No comments: