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CONSUMER DEBT CANADA & TORONTO HOUSING BOOM PUTS CANADA’S ECONOMY AT RISK

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Consumer debt Canada: Introduction

Consumer debt Canada and household debt as a percentage of income remains a hot topic these days. The high household debt as a percentage of income coupled with a Toronto housing boom and until recently a Vancouver housing boom, puts Canada’s economy at risk. Whenever we thought that Canada’s consumer debt burden had swelled to its limit, it’s reached a new high.

Consumer debt Canada: Our previous blogs and vlogs

We have before blogged and vlogged about:

Consumer debt Canada: How serious is Canada’s consumer debt burden?

Consumer debt Canada has achieved a new milestone; for the first time in history, the level of debt held by Canadians has surpassed the country’s gross domestic product to 100.5% of GDP, up from 98.7% during the previous three-month period. According to Statistics Canada:

  • The ratio of credit market debt to disposable household income climbed to 167.6% between April and June, from 165.2% in the first quarter of the year
  • Total credit market debt was $1.97 trillion at the end of the second quarter
  • Consumer credit alone reached $585.8 billion
  • Mortgage debt stood at $1.29 trillion
  • Net worth of households increased 1.9% in the second quarter to $9.84 trillion boosted by a gain in real estate

Consumer debt Canada: What’s causing this?

Surprisingly, some feel that the debt isn’t actually the problem. Benjamin Tal, deputy chief economist at CIBC World Markets reports, “Given that interest rates are so low, this is an environment you’d expect consumer credit to rise to the sky — and it’s not. The debt-to-income ratio is not because of the debt accumulating very fast, but rather the income is not rising fast enough to compensate (borrowers).”

Consumer debt Canada: How is Canada’s economy at risk?

According to the Bank of Canada and the International Monetary Fund, it was low-interest rates that stimulated a growth in household credit. As a result many Canadians are highly indebted. Should there be any adverse shock to the economy, the Canadians who will feel it the most are those who’ve borrowed above their ability to meet mortgage payments if a real-estate crash occurred.

Consumer debt Canada: What’s being done to keep Canada’s economy stable?

The Liberal government just announced four major changes to prevent Canadians from assuming bigger mortgages than they can afford. In addition the changes address concerns related to foreign buyers who buy and flip Canadian homes.

Consumer debt Canada: What are the four major changes?

  1. A mortgage rate stress test implementation for approving high-ratio mortgages to all insured mortgages as of October 17, 2016 to prevent defaults in the future should the mortgage rates rise.
  2. The government will impose new restrictions on when it will offer insurance for low-ratio mortgages as of November 30, for lowering its exposure to residential mortgages for properties worth $1-million or more.
  3. As of this tax year new reporting rules for the primary residence capital gains exemption will come into effect. The capital gains tax is still waived, but the sale of the primary residence must be reported at tax time to the Canada Revenue Agency.
  4. The government is launching consultations on lender risk sharing because the federal government wants to limit its financial obligations if widespread mortgage defaults begin.

Consumer debt Canada: What to do if yours is so high it is stressing you out

If you find yourself with more debt than you can afford to pay contact a professional trustee immediately. We’re experts in debt management and with immediate action and the right plan we can help you get your finances back on track Starting Over, Starting Now. Give Ira Smith Trustee & Receiver Inc. a call today.

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HOW BINGE BORROWING RAISES CANADA’S HOUSEHOLD DEBT BURDEN

orrowing binges, household debt, binge borrowing, household debt burden, debt, disposable income, consumer debt, credit-market debt, consumer credit, mortgage debt, personal lines of credit, car loans, Canada's household debt burden, household debt burden, Canadian household debt , ira smith trusteeBinge borrowing raises Canada’s household debt burden

We worry about binge eating and binge drinking, but it appears that we are not paying enough attention to Canada’s latest problem – binge borrowing. Incredibly low interest rates and sky high house prices have contributed to this trend. The Bank of Canada, the federal government and many economists have long been concerned that consumers who have been binge borrowing are now exposed to risk in the event of an economic shock or significant downturn.

Just when we thought Canada’s household debt burden couldn’t go higher!

Just when we thought that Canada’s household debt burden was at its peak, in the third quarter of 2015 Canada’s household debt burden hit another record high. This means that Canadian’s debts grew faster than their incomes. According to Statistics Canada:
• The ratio of household credit-market debt to disposable income rose to 163.7% in the three months ended September 30, up from 162.7% in the second quarter (this means the average household had nearly $1.64 in debt for every dollar of disposable income)
• This was the highest ever reading in this key ratio for gauging consumer debt loads
Debt rose 1.4% in the quarter, while disposable income increased by 0.8%
• Total credit-market debt reached $1.89-trillion in the third quarter, also a record
• Mortgage debt was $1.23-trillion
• Consumer credit – credit cards, car loans, personal lines of credit and other personal loans – totalled $572-billion

What will your debt do in 2016?

Unfortunately Canadians ended 2015 with more debt than they started off with and this is a trend that expected to continue into 2016. Are you ready to stop binge borrowing and get control of your finances before you are facing a financial crisis? Professional help is just a phone call away. Contact Ira Smith Trustee & Receiver Inc. As a firm of professional trustees we’re experts on dealing with debt. Our approach for every file is to create an outcome where Starting Over, Starting Now becomes a reality, beginning the moment you walk in the door. Call us today and take the first step towards living a debt free life.

 

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