Maybe we aren’t TOO indebted
Rising household debt in Canada, and the associated risks posed to the housing market and Canadian economy, increasingly is becoming a topic of great debate. Statistics Canada reports that the debt-to-income ratio for all households in Canada has reached some 151%, which may be a concern, say some, as that ratio is now higher than in the U.S. (which peaked at over 160% in 2007, and has since declined), the U.K., and many other OECD countries.
When the topic of the current debt situation in Canada is being discussed, it is important to have perspective. Comparing today's statistics to those from three years ago or more will give unbalanced results. This article from the Financial Post shows why Canadians' debt-to-income ratio is not as severe a concern as originally believed, and gives realistic examples of emerging trends.
Accumulating debt is reliant on many factors for a family. Canadians now have a longer life expectancy, are starting families later and retiring later in life. All of these factors contribute to the decision to first obtain a mortgage, and second, how much that mortgage will be. It is believed that a higher debt-to-income ratio is not a threat to the financial system. Recent findings reveal that the spike in home prices has begun to normalize. This combined with current mortgage rates should curb excessive household debt.
Another recent survey shows that a large percentage of Canadians have indicated they are financially prepared for an increase to interest rates. Taking into account a forecasted stronger economy and Canadians' capacity to borrow within their means, household debt is expected to remain manageable.
Read the full article from the Financial Post here.