Canada's Household Debt Level Leads G7

In the G7, Canada has the most household debt. This could put its economy at risk during a global economic crisis. The housing agency said this.

A report on Tuesday said that Canada's household debt is increasing due to higher home prices. The report was written by Aled ab Iorwerth, who is the deputy chief economist at Canada Mortgage and Housing Corp.

In Canada, almost 75% of household debt is made up of mortgages. Back in 2008, household debt was 80% of the Canadian economy, but it went up to 95% in 2010. And now in 2021, household debt is even higher than the Canadian economy.

Ab Iorwerth stated that household debt in the United States dropped from 100% of GDP in 2008. Currently, it is around 75% in 2021.

The amount of debt in American households went down, but it went up in Canadians. This could keep happening unless we make homes more affordable.

In the U.K and Germany, household debt went down. Italy's household debt almost stayed the same.

Ab Iorwerth said that not all debt is bad, but too much debt can be harmful during economic downturns. Those events can cause a lot of people to lose their jobs, making it tough for them to repay their loans. This situation is particularly tough for homeowners who may struggle to pay their mortgages.

A new report by CMHC will show how Canadians are managing with the higher interest rates. The report is not out yet. However, an official from the agency, ab Iorewerth, said they have seen "early warning signs." This means that people are having more financial difficulties.

He wrote that a lot of debt in households can be bad. This happened in the U.S. in 2007 and 2008.

Canada has strong financial regulations that protect it. This means people can still pay their mortgages even if interest rates are high. However, if there's a big global economic crisis, Canada's high household debt could be a problem.

To lower the danger, CMHC suggests two methods: 1. Make housing in Canada more affordable by increasing its quantity in the market. 2. Repair and rebuild rental accommodation to make it better, attractive and modern, so people don't feel the need to become homeowners.

RBC Economics says a recession is coming. Unemployment may rise to 6.6% by early 2024. This could cause more Canadians to struggle with debt. People may start to miss payments and become insolvent.

The report predicts that mortgage delinquencies might increase sharply in the coming year. There are two main reasons for this. Firstly, the government's pandemic support measures are ending. Secondly, the cost of living is increasing quickly. The report expects delinquencies to rise by more than 33% from current levels.

RBC predicts a possible 30% rise in consumer insolvencies in the next three years. This would bring us back to pre-pandemic levels. Experts say there is a chance that insolvencies will continue to increase after that.

The Canadian Press published this report on May 23, 2023.