While the value of Canadian homes has decreased for the first time many years, the same cannot be said for Canadian debt levels. This past week, Statistics Canada released its National balance sheet and financial flow accounts looking at the last quarter of 2018, and it shows that the amount Canadians owed relative to their income increased towards the end of the year. The average debt-to-disposable income percentage went to 178.5 per cent (up from 178.3 per cent in the previous quarter). That means for every dollar of disposable income a Canadian household has, they owe $1.79 in credit market debt. The report also dove into the latest housing figures and interest rate trends.
Demand for mortgage loans rising
In the last quarter, Canadian households borrowed $21.1 billion. While the demand for consumer credit and non-mortgage loans did go down, demand for mortgage loans rose $2.3 billion to a total $12.3 billion.
In terms of overall credit market debt, including consumer credit and mortgage and non-mortgage loans, Canadians owe a total of $2.21 trillion. The largest piece of that pie is allocated to mortgage debt at $1.4 trillion, while consumer credit and non-mortgage loans made up $769.4 billion.
Despite this increase in the fourth quarter, household credit market borrowing in 2018 was down 19.5 percent to $84.6 billion, when you factor in the whole year. This is the lowest level of borrowing since 2014.
Meanwhile, Canadian home sales fall
This past quarter was the weakest for residential real estate since the fourth quarter in 2008. The total sales of residential real estate fell by 14.7 percent. To look at it in a different way, as mentioned above, home values fell $30 billion in the fourth quarter to $5.10 trillion. That’s a 1.4 per cent decline.
This decrease, in part, could be due to the recent introduction of the mortgage stress test for every Canadian in 2018. Before then, the stress test was mandatory only for borrowers making a down payment of less than 20 percent. These new rules were introduced to keep Canadians from taking on more debt than they could afford; however, this means that some potential homeowners can no longer afford a home. They’re simply not buying a home, after all, and that could force the value of houses on the market to decrease.
However, there are rumours in recent months that the Canadian government could be looking at other options to make housing more affordable — ones that don’t include the stress test.
Interest rates holding steady, for now
Canadians can, for the moment, breathe a sigh of relief when it comes to interest rates. This month, the Bank of Canada decided to keep the benchmark interest rate at 1.75 percent. This is the level it’s been at since October, which was the fifth time since summer 2017 that it has increased.
The Bank of Canada states it will keep this rate until household costs, oil prices, and U.S. trading policies improve. But, if interest rates do increase, which the Bank of Canada is expected to do once or twice this year, it will have an effect on the amount of interest people are paying on those increasing debt levels.
Shop around to find the best mortgage, credit, and insurance rates
As we see an increase in household debt to income ratios, this is the perfect time to find the best mortgage, credit card, and insurance for you. Any money that you can save is money in your pocket that you either don’t have to borrow or that you can use to pay back existing debts.