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  1. #1
    Forum Frontman It's Mike's Avatar
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    Default New alarm bells over household debt as Canada faces 'downward spiral'

    it was just a matter of time but it would appear that the storm clouds are starting to form ...

    http://www.theglobeandmail.com/repor...ticle22797037/

    As Canada’s economy begins to slow, the country’s growing household debt burden is raising new concerns as it outpaces that of most developed countries.

    In fact, Canada had the second-biggest jump in household debt-to-income ratios of any country other than Greece between 2007 and the second quarter of 2014, a new study says.


    Canada and Australia along with a number of countries in northern Europe “now have larger household debt burdens than existed in the U.S. or the U.K. at the peak of the credit bubble,” according to a new analysis.

    The McKinsey Global Institute looked at 47 countries and identified seven with “potential vulnerabilities” in household debt that could lead to financial instability and a consumer spending slowdown: the Netherlands, South Korea, Sweden, Australia, Malaysia, Thailand – and Canada.

    The study, to be released Thursday, comes amid mounting evidence of a sputtering economy. The country’s GDP shrank in November, and last year’s job growth has been revised lower while oil prices have slumped, restraining business development.

    The report was based on data to the second quarter of last year.

    Since then, several factors make the picture in Canada more stark: Household debt-to-income ratio rose further, to a record 162.6 per cent in the third quarter. House prices continued to climb, though the pace is slowing. And the Bank of Canada cut interest rates last month – with another reduction possible in March – moves that could spur even more borrowing.

    “What the financial crisis showed us is that when you have rising real-estate prices and rising household debt, it can be a deadly mix. You have to manage each carefully,” Susan Lund, Washington-based McKinsey partner, saud in an interview.

    It is crucial to monitor household debt levels closely, she said – in particular, which segments by income or demographic group seem to be slipping under water. And policy makers need to tighten lending standards and reduce mortgage size limits when markets are overheated.

    Of the central bank’s rate cut, Ms. Lund said it’s “tempting to try to spur growth through credit. But it makes the need to monitor debt more urgent.”

    If left unchecked, the risk is that households will no longer be able to afford the debt they’ve taken on. They could either be vulnerable to foreclosures and bankruptcies – or they could slash spending to pay back debt. That in turn could reduce consumption, which could dent economic growth and trigger a recession – a “downward spiral,” according to Ms. Lund.

    The study looked at whether high household debt in some countries will eventually spark a crisis. It analyzed the level and growth of debt-to-income ratios, debt-service ratios, and house price changes. By these metrics, it highlighted Canada as being one of the most at risk.

    The Bank of Canada has long held that rising household debt poses one of the biggest risks to the domestic economy – though it has also become increasingly focused on lower oil prices.

    Residential mortgage credit grew by 5.3 per cent in Canada last year while non-mortgage credit growth expanded by 3 per cent amid more personal lines of credit, Royal Bank of Canada noted Wednesday. The pace of growth for both kinds of credit accelerated in 2014 from a year earlier.

    House prices have been a key factor in debt growth. Between 2000 and 2007, house prices zoomed higher in many countries – by 138 per cent in Spain, 89 per cent in Canada and 55 per cent in the United States.

    Rising house prices have led to larger loans. With more banks willing to lend, real estate prices have climbed higher still. “The correlation between growth in real estate prices and household debt is seen across countries,” the study said.

    The seven countries with household debt that “may be unsustainable” have both the highest debt-to-income ratios and significant growth since 2007. Canada is the exception in having better debt-service ratios, though that could change when borrowing costs rise. In all, “these figures suggest potential risk but do not signal imminent crises.”

    There is a caveat – Canada’s household debt numbers include the debt of unincorporated businesses, which is counted as corporate debt in other countries. That may inflate Canada’s numbers, though McKinsey notes that the trend lines still show continuous growth.

  2. #2
    Eruption Arson's Avatar
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    Canada’s household debt numbers include the debt of unincorporated businesses, which is counted as corporate debt in other countries. That may inflate Canada’s numbers, though McKinsey notes that the trend lines still show continuous growth.
    Assuming it was counted...how would this compare to the US?

    We incorporate our comic book collections here...

  3. #3
    Forum Frontman It's Mike's Avatar
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    Quote Originally Posted by Arson View Post
    Assuming it was counted...how would this compare to the US?

    We incorporate our comic book collections here...
    most reliable estimate puts Canada's debt to disposable income (income less taxes) at about 160 pecent while America's is somewhere in the area of 130-140. Most of Canada's increase debt load can be tied to mortgage debt - house prices in our major cities have risen steadily for the past decade or so. A correction has been predicted for years but we haven't seen it at a national level as of yet.

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    Eruption Arson's Avatar
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    Quote Originally Posted by It's Mike View Post
    most reliable estimate puts Canada's debt to disposable income (income less taxes) at about 160 pecent while America's is somewhere in the area of 130-140. Most of Canada's increase debt load can be tied to mortgage debt - house prices in our major cities have risen steadily for the past decade or so. A correction has been predicted for years but we haven't seen it at a national level as of yet.
    What is the comparison of Canadians living in (higher priced) urban areas vs what we call the country?

    I have this notion you guys don't have numbers of people living in the middle of nowhere like we do...is that the case?

    We have lots of cheap homes if you don't mind living a half and hour away from a hospital.

    What is the comparison of price per square foot living in city vs US cities?

    What are your interest rates?

    Apologies for the questions, just was surprised by this article.

  5. #5
    Forum Frontman It's Mike's Avatar
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    Quote Originally Posted by Arson View Post
    What is the comparison of Canadians living in (higher priced) urban areas vs what we call the country?

    I have this notion you guys don't have numbers of people living in the middle of nowhere like we do...is that the case?

    We have lots of cheap homes if you don't mind living a half and hour away from a hospital.

    What is the comparison of price per square foot living in city vs US cities?

    What are your interest rates?

    Apologies for the questions, just was surprised by this article.
    no reason to apologize at all.

    80/20 split on Urban vs Rural here.

    most of the population lives close to the US border (mostly weather related) in big cities, not much population as you go north of the major cities (aka the middle of nowhere) but many of us drive north to vacation funnily enough.

    Cheap homes is a relative measure. In or around Toronto there's no such thing, same games for other big cities like Vancouver. Avg home price in Canada is over 400,000 dollars but this is mainly due to the prices in the big cities (Vacouver over 800,00, Toronto about 550) dragging up the average

    Once you drive far away from the big cities you can get a cheap place to call home (many people retire away from urban centres) , in fact many do this now and commute long distances to work in the city.

    Big cities here (and home prices) pretty much mirrors big US cities. I think the last survey I saw had Vancouver as the most expensive price for homes in North America and I'm pretty certain Toronto and Calgard were also in the top 10. Price per sq foot is entirely based on what city. Vancouver is stupid expensive

    Interest rates here are comparable to the states, a little lower overall. Cheap money is one of the main factors in the prices being so high. We bought our little place in a Toronto suburb for 360 grand in 2005, it would likely sell for 560 today. Many first timers are taking on that size mortgage which is one of the reasons interest rates remain low. The Bank of Canada knows they'd cripple people if they brought rates up.

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  7. #6
    Gird your loins Daisy Hill's Avatar
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    Quote Originally Posted by It's Mike View Post
    most reliable estimate puts Canada's debt to disposable income (income less taxes) at about 160 pecent while America's is somewhere in the area of 130-140. Most of Canada's increase debt load can be tied to mortgage debt - house prices in our major cities have risen steadily for the past decade or so. A correction has been predicted for years but we haven't seen it at a national level as of yet.
    man the house prices on the HGTV shows that are shot in Canada are crazy. Like Love it or List it......a couple will be in an older 1930's or 1940's house with maybe 1400 sf and3 bedrooms, one or one and half baths and the value of the home is listed at 450,000, then they put 75,000 into it to make it nice and the value is 550,000 FOR A ROW HOUSE. same house in Toledo, 85,000....7,000 if it's in East Toledo LOL but east Toledo is a whole nuther story.

    but then they take them out and show them already improved 3 bed 2 bath houses and they are 550,000 to 650,000 Wild. Toronto might be the best city in the world, especially for landlords.

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  9. #7
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    12.16.17 @ 06:36 AM
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    My sister in law and her husband just moved to Texas.

    Outside of Dallas Fort Worth.

    They bought this little gem for $512,000, on five acres of land. This is why I want to move to Texas!

    Taylor Swift is nice to look at. Adele can sing.

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  11. #8
    Forum Frontman It's Mike's Avatar
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    Quote Originally Posted by Daisy Hill View Post
    man the house prices on the HGTV shows that are shot in Canada are crazy. Like Love it or List it......a couple will be in an older 1930's or 1940's house with maybe 1400 sf and3 bedrooms, one or one and half baths and the value of the home is listed at 450,000, then they put 75,000 into it to make it nice and the value is 550,000 FOR A ROW HOUSE. same house in Toledo, 85,000....7,000 if it's in East Toledo LOL but east Toledo is a whole nuther story.

    but then they take them out and show them already improved 3 bed 2 bath houses and they are 550,000 to 650,000 Wild. Toronto might be the best city in the world, especially for landlords.
    a small condo in downtown toronto can rent for a couple thousand a month. It's a landlords dream if they got in early and bought a lot of units.

    Part of me so wants to move to the middle of nowhere and pocket a half million dollars but then i realize getting to and from work (for me and my wife) would be horrendous (it already is actually)

  12. #9
    Atomic Punk bsbll4's Avatar
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    High household debts, rising house prices, banks lending like crazy, government afraid to raise interest rates because of a sagging economy....where have I heard this before?

    Were you guys not taking notes in 2008?
    CNN may think my opinion matters, but you shouldn't.

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  14. #10
    Gird your loins Daisy Hill's Avatar
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    Quote Originally Posted by Dave's Dreidel View Post
    My sister in law and her husband just moved to Texas.

    Outside of Dallas Fort Worth.

    They bought this little gem for $512,000, on five acres of land. This is why I want to move to Texas!

    nice house! and 5 acres....wow, with 5 open acres I could have a herd of those pygmy fainting goats.

    I would like to get out of my businesses in the next few years and move south or someplace warmer anyway. and no freaking snow. Florida is way over rated, over priced and just OVER in my opinion. It's all gonna fall into a big sink hole anyway.
    California is out of my league price wise. My brother lives there and I don't know how he does it.

    I'd like to convince my family to get out of Florida and move to Texas with me. I see more opportunities there and a good retirement too. If I can stay in the Houston area I'd have a shot....there's some talk of my nephew getting transferred to Texas anyway and my sister in law's brother and best friend lives in Houston..so I think I'd have a shot. I wouldn't mind being a Texan..... I might have to buy a Raquel Welch wig to fit in with those high haired ladies, but I think I could handle it.

    only problem is I have lived my whole life on the water and I would need to be near a big lake, a river or the ocean. can't do that dry desert West Texas stuff. nope

  15. #11
    Forum Frontman It's Mike's Avatar
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    Quote Originally Posted by bsbll4 View Post
    High household debts, rising house prices, banks lending like crazy, government afraid to raise interest rates because of a sagging economy....where have I heard this before?

    Were you guys not taking notes in 2008?
    it is a little different here. The mortgage lending rules are much more strict. You can't get a no money down mortgage (you need at least 5% equty, and if it's under 25% you have to buy additional insurance), there's no such thing as an interest only mortgage (you must amortize over no more than 25 years), your mortage payment can't be above I think 40% of your income.

    I remember when the bubble burst in the states and one of the bank execs was speaking as was asked why and he said it was due to American's banks love of NINJA mortgages. Ninja stood for No Income, No Job, No assets. Everyone knew it was gonna implode but the banks didn't care because they sold off those mortgages, that's another difference, we can't do that here.


    That said it oil stays as low as it does then house prices will drop here and maybe by a good amount just because of the job losses that'll bring.

  16. #12
    Atomic Punk Dave's Dreidel's Avatar
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    Quote Originally Posted by Daisy Hill View Post
    nice house! and 5 acres....wow, with 5 open acres I could have a herd of those pygmy fainting goats.

    I would like to get out of my businesses in the next few years and move south or someplace warmer anyway. and no freaking snow. Florida is way over rated, over priced and just OVER in my opinion. It's all gonna fall into a big sink hole anyway.
    California is out of my league price wise. My brother lives there and I don't know how he does it.

    I'd like to convince my family to get out of Florida and move to Texas with me. I see more opportunities there and a good retirement too. If I can stay in the Houston area I'd have a shot....there's some talk of my nephew getting transferred to Texas anyway and my sister in law's brother and best friend lives in Houston..so I think I'd have a shot. I wouldn't mind being a Texan..... I might have to buy a Raquel Welch wig to fit in with those high haired ladies, but I think I could handle it.

    only problem is I have lived my whole life on the water and I would need to be near a big lake, a river or the ocean. can't do that dry desert West Texas stuff. nope
    I said the same thing and was told there were lakes in the Fort Worth area, but I can't speak for them as I didn't see any.

    I was in Northwest Texas earlier this year, you would have to pay me a LOT to move there. Didn't like it.

    But I really liked the Fort Worth area, and I've been to Houston and San Antonio and liked both cities. That being said, a lot of time when I travel I am only seeing the nice parts of a city, so take all of that with a grain of salt.

    I just want to move where it's warm, I hate the winter.
    Taylor Swift is nice to look at. Adele can sing.

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    House prices over here are bloody outrageous...I was just looking at the house DD posted, and estimated that to be about £250,000...Even out here, in the depths of North Wales, where the economy is down the pan, £250K really doesn't go very far (to give you some sense of perspective, the house I sold in 2012 is now worth the equivalent of about $625,000 USD - it had next to no land, and was maybe half the size of DD's pic) - and in London, my God, you might just be able to buy a garden shed for that amount!

    I think the problem over here is the shortage of space - homes are at a premium because we just don't have enough room to build any more, whilst the population continues to grow (and not because the natives are having lots of kids either... )
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    Atomic Punk
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    I have thought about trying to move over to the USA lots of times - I quite fancy Virginia, and the houses are ACE, for the money...But then I think about Creme Eggs and Jaffa Cakes, and am forced to reconsider.
    I'm FEMALE...Deal with it!

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    Atomic Punk Dave's Dreidel's Avatar
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    When in Texas you can just tell they have SO MUCH DAMN SPACE they don't have to think about how things will fit together.

    The way they organize things (or don't depending upon your outlook) wastes a lot of space.

    For example, DFW Airport...FUCK! What a cluster that place is.
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