Canada’s household debt levels are worse than previously thought, and even rival those behind the U.S. housing bubble crisis. Statistics Canada revised their take on Canada’s debt-to-income level numbers on Monday, setting them at 163.4 per cent – a sharp jump from previously reported levels of 150.6 per cent.
New Standards Lead to Dangerous Debt Levels
The new conclusion was reached as StatsCan applied updated international standards to the debt-to-ratio methodology that excludes non-profit organizations from the equation. The numbers point to lower disposable incomes and higher-than-thought household credit debt – the “biggest domestic danger to the economy” according to finance policy makers.
What Threat Does This Pose to the Canadian Economy?
An average income-to-debt ratio of over 160 per cent – the toxic level that spurred both the U.S. and UK economic downturns – means Canadian consumers should tread lightly, and avoid putting themselves in a too-vulnerable debt-induced position. It was what Finance Minister Jim Flaherty was trying to avoid when he established mortgage rule changes this summer preventing many would-be buyers from overextending their borrowing capacity. It was the fourth implementation of such changes, and effectively shut many first time buyers out of the market – but will they work?
Wait And See
According to Bank of Canada Governor Mark Carney, in a speech made last week on Vancouver Island, “The sum of those actions is still having an impact on the adjustment in housing finance.” He added that more information will be made available by the Bank of Canada in their next Monetary Policy Report, to be released on October 23. Potentially rising rates could present a challenge for many debt-strapped Canadians, who find themselves increasingly vulnerable to interest hikes and housing market fluctuations as a result of these new findings.