You may have heard the phrase household debt constantly in the news over the last two years. Repeatedly, we have heard warnings that household debt is at all-time highs and is unsustainable.
However, this quarter there was a slight reversal as the amount Canadians owe compared with their income dropped in the first quarter but is still near record levels. According to Statistics Canada, the amount of household credit-market debt as a proportion of household disposable income dropped to 166.9% in the first quarter when it was previously 167.2%.
The central bank has indicated it may start slowly raising rates as the economy has improved; however, they have been saying this for over two years so it is really difficult to predict if this is the case or not. Having said that consumers should always take a look at their finances and what effect interest rates would have on them if they go up or down.
While we keep hearing reports of household debt rising it is important to note that part of this is natural given housing prices have been rising dramatically and therefore people must borrow more money in order to buy the same home they did several years ago. Housing affordability has not been addressed and a natural consequence of this is that people must borrow more money in order to own a home.
Total debt for Canadians totalled $2.041 trillion in the first quarter. Of this, mortgage debt represented 65.7% which was up from 65.6% during the previous quarter.
Household net worth (assets less liabilities) rose 2.2 per cent to nearly $10.534 trillion. Households borrowed $27.5 billion on a seasonally adjusted basis in the first quarter which was down slightly from $27.6 billion in the previous quarter. Mortgage borrowing increased $2.7 billion in the last quarter while demand for consumer credit and non-mortgage loans fell $2.8 billion to $6.5 billion.
While the household debt statistics seem staggering the last paragraph gives us some light. Mortgage debt is on the rise naturally as home prices have increased. Consumer debt is decreasing (credit cards & loans). This is important. If you are going to have debt you want cheaper mortgage debt and you want to be owing a home. This will form part of your savings for retirement.
The government has made it harder and harder to obtain a mortgage over the last 5 years and yet they haven’t tackled the problem of how easy it is to apply for consumer debt. Owning a home over the long term will help you in terms of having an asset saved up for retirement. Consumer debt generally will not. If they are serious about tackling the debt problem then they must take a look at consumer debt. High interest rate credit cards and loans are way too easy to obtain and will erode away at the assets of Canadians continually throughout their life.
If you have any questions regarding your own personal situation please contact our office at 604-556-3893 or email at email@example.com.
For more information on our mortgage products please visit our website at www.ymscanada.ca