Signs of stress are already evident, especially when you look
at household debt levels.
Like if you look
at the household debt to income ratio, it's at 164 % and then main reason for that is because of mortgage debt.
Not exact matches
• Credit card delinquency rates remain low,
at only 0.87 per cent of total outstanding balances as of April 2016, while credit card
debt only makes up five per cent of total
household debt in Canada.
There's an economic imperative
at play, of course: thanks to steadily increasing costs of living, and record levels of
household debt, many sexagenarians and even septuagenarians simply can't afford to stop working.
So just how are mortgage delinquency rates so incredibly low
at a time when
household debt levels relative to incomes have never been higher?
One of my constant points on this blog for the last several years has been that
households» refinancing of their mortgage
debt at lower and lower rates has put more money in their pockets for spending and for paying down
debt.
But low interest rates,
at least in Canada, have pushed
household debt to such vertiginous levels that officials like Carney know they shouldn't be counting on consumer spending to drive the recovery — ergo, the call for more corporate investment.
«I will continue to act to ensure that
household debt levels are sustainable, that lenders are acting prudently, and that increases in interest rates or a housing market downturn don't put
at risk the economic growth we are working so hard to accelerate,» Morneau said.
Forget about
household spending: with
debt at record levels, consumer spending on new goods and services will be restrained.
Average
household credit card
debt currently stands
at over $ 7,000.
At least some
households would use the funds to pay down
debt, meaning the money would flow to the banking sector anyway, but with one critical difference:
household debt would actually decline, leaving
household balance sheets in better shape and owing less interest every month.
He devoted a chunk of his maiden speech to challenging the notion that further regulation is needed for credit cards, arguing two - thirds of Canadians pay off their balances every month, meaning they incur no interest
at all, and that credit cards account for just 5 % of total
household debt.
It's no surprise that
debt is a focus:
At the end of 2016, the average
household carrying
debt owed $ 134,643, according to a NerdWallet analysis of Federal Reserve data.
Among
households that had credit card
debt at the end of 2016, the average owed is $ 16,748, according to a NerdWallet analysis.
Late last year, economists
at CIBC said rising
household debt was to be expected; Canadians «responded rationally to an era of very low interest rates.»
With the rate of home ownership now close to 70 %, and with
household debt at a record high, much of the financial health of Canadian
households is inextricably linked to home values, making it the kind of dominant concern that not only affects
household finances, but consumer psychology and confidence.
According to Statistics Canada, the ratio of
household debt to disposable income stood
at just under 150 %
at the middle of this year.
They also fear that
at such elevated levels, many Canadian
households would be unable to withstand a financial shock such as a loss of income, or a sudden spike in interest rates that raised
debt services charges.
Economists
at TD issued a report on Tuesday revealing that
household debt has increased across all age groups during the last decade, both in absolute terms and relative to income.
Policymakers are fixated on the
debt ratio in part because it was
at above 160 per cent that
households in the United States and Britain ran into trouble about five years ago, contributing to defaults and the financial crisis that triggered the 2008 - 09 recession.
Meanwhile, overall
household debt stood
at more than $ 13 trillion
at the end of 2017, according to the Federal Reserve.
Atif Mian, an economics professor
at Princeton, and Amir Sufi, a professor of finance
at the University of Chicago, conclude that economic disasters are «almost always» preceded by a large increase in
household debt.
Poloz's approach to now had been a series of gentle nudges; raising housing prices and record
household debt as concerns, but
at the same time accepting that buyers and their lenders likely knew what they were doing.
Meanwhile, the total
household debt service ratio, measured as total obligated payments of principal and interest as a proportion of
household disposable income for both mortgage and non-mortgage
debt, remained flat
at 13.8 per cent in the fourth quarter.
And when you remove
debt - free
households from the equation — people with either no
debt or no credit to speak of — the average
debt load was more than double that,
at $ 15,609.
It sounds tempting — especially with the Bank of Canada warning last week that
household debt continues to grow
at dangerous speeds in this country.
To do so, you also need Gross Domestic Balance Sheet, or
at least Total Domestic
Debt from all sectors (
households, companies, government).
At that time, the main data sources on consumer
debt consisted of loan - level data sets on specific categories of loans, such as mortgages, as well as aggregated data on
household sector
debt from the Board of Governors» Flow of Funds statistical release.
But
household debts acquired
at 30 to 50 percent of face value have been re-valued
at up to 100 percent.
I think that it will be hard to escape the conclusion that
household debt grew
at an unsustainable pace in the decade before the great financial crisis and that this was an important spur to growth.
Corporate and
household debt has also been on a tear, up to 201 % of GDP
at the end of the first quarter from 138 %
at the end of 2008 according to Bernstein Research.
At the heart of this uncertainty is the high level of
household debt.
Our researchers found the median
debt per American
household to be $ 2,300, while the average
debt stands
at $ 5,700.
Growth in
household credit has remained relatively stable
at around 5.5 per cent since the beginning of the year, a pace below the historical average (Chart 22), following an extended period of rapid growth that led to a substantial buildup in
household debt.
To obtain this figure, we looked
at data reported by the Federal Reserve for Outstanding Revolving
Debt - we then divided that number by the number of card - carrying
households each year.
When this happens and as
debt levels rise relative to
debt servicing capacity,
at some point the major stakeholders — including businesses, creditors,
household savers, workers and so on — became uncertain enough about how this gap will be allocated that they take steps to protect themselves from this uncertainty.
If there's one word that defines the Canadian economy
at the moment, it's uncertainty — what with the shaky housing market, towering
household debt loads and, of course, a certain orange - hued world leader rattling the sabre of trade wars.
And thirdly, of course, higher leverage means that monetary policy's impact via its effect on the behaviour of borrowers will be bigger than in the past — especially in a country like Australia where the majority of
household debt is
at floating rates.
We upgraded our view on U.S. consumer discretionary stocks last fall and still believe that
households are in a better position than they were just a few years ago: Consumer
debt is down while
household wealth is up, gasoline prices are much lower than a year ago and the U.S. is creating jobs
at the fastest pace since the 1990s.
While her departure removes another thorn from Najib's side, it comes
at a time when the ringgit has lost 21 percent of its value against the dollar in the past twelve months and
household debt is amongst the highest in the region.
«A slight decline in real - estate related balances, consistent with broader housing market developments, contributed to a flat quarter for total outstanding
household debt,» Donghoon Lee, senior economist
at the New York Fed, said in a statement.
Governor Stephen Poloz sounded a little too, well, relaxed about
household debt at a media conference Tuesday, writes Jennifer Wells.
Until we understand this do not expect the global crisis to end anytime soon, except perhaps temporarily with a new surge in credit - fueled consumption in the US (which will cause the trade deficit to worsen) and more wasted investment in China (which, because it is financed with cheap
debt, which comes
at the expense of the
household sector, may simply increase investment
at the expense of consumption).
Report to CMHC warns steady climb of
household debt - to - GDP level puts Canada's economic growth prospects
at risk
That would seem to be the point
at which interest rates are
at the lower bound and the balance sheet can not be expanded
at a SOE /
household / business level assuming they are not using foreign FX to
debt finance.
Monetizing
debt creation
at the expense of
households worsens the imbalances and makes the economy even more dependent on public sector investment, which means that the
debt burden would grow even more quickly.
Judged
at the median, young
households without student
debt have indeed experienced declining
debt burdens since 2007.
«
At a time when consumers are carrying record amounts of
debt, the persistence of HELOC
debt may add stress to the financial well - being of Canadian
households.
Bill Robson, president of the C.D. Howe Institute, a public policy think - tank, said one of the greatest challenges for the middle class is saving more for retirement
at the same time wages aren't growing nearly as fast and
household debt piles up.
In addition, it can encourage consumers to add to their
debt load, which could put stress on Canadian
households,
at a time when they are carrying record amounts of
debt.