The overall Canadian economy has been in a quandary: it missed out on the significant impacts of the Great Recession, but household debt levels and its housing market have become major concerns for public officials at all three levels of government.
According to a new report from Statistics Canada, Canadians are richer than ever before as they are also cutting back on their mortgage debt. The statistics agency found that mortgage debt increased only 0.6 percent in the first quarter of this year, the slowest pace since the financial downturn in 2009.
On an overall scale, StatsCan concludes Canadians are getting wealthier and they are decreasing their substantial debt levels even with record-low interest rates. National net worth grew 1.5 percent to $7.8 trillion, which is equal to $221,300 on a per-capita basis. When families are measured, household net worth rose 2.5 percent to $7.9 trillion, driven mostly by stocks in mutual funds.
“Though often overshadowed by the debt headlines, big gains in the asset side of the balance sheet may well be the bigger story at this point of the cycle,” chief economist Douglas Porter of BMO Nesbitt Burns told the Globe and Mail. “With the TSX finally capturing a new record high just yesterday, that train is still chugging in favour of household finances.”
Economist Laura Cooper of Royal Bank of Canada told the business newspaper that the recent data supports the Bank of Canada’s claims that consumer debt levels are improving.
“With housing market activity set to cool after a likely short-lived weather-related bounce in the spring, a further slowing in mortgage credit growth along with firmer income gains are expected to keep a lid on the debt-to-income ratio in the quarters ahead,” Cooper said. “While the debt-to-income ratio remains historically elevated, the mild improvement in the condition of household balance sheets will insure that a precipitous deterioration in households’ ability to service their debts is less likely.”
Despite the rosy depiction of the Canadian credit market, consumers currently owe nearly $30,000 on credit cards, auto loans and student loans. It is expected the average household non-mortgage debt will reach an all-time high by the end of the year.
The Bank of Canada’s Stephen Poloz as well as his predecessor, Mark Carney, has noted on previous occasions that household debt and overvalued real estate properties – valuations expanded and overbuilding – are one of the most substantial financial vulnerabilities currently facing the national economy and in certain parts of the country. Some of the cities that many experts identify as facing tremendous bubbles include Vancouver and Toronto.
Although economists, incumbent politicians and financial experts might be celebrating these new figures, Canada still faces an uphill battle with a seven percent unemployment rate, a $620 billion national debt, $15 billion annual debt payments and a workforce that is dominated by part-time jobs.