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Canajun Finances Home » Canadian Home Debt Grows Some More (Q2)

Canadian Home Debt Grows Some More (Q2)

From 2011, when the debt bubble continued to grow with the historically low interest rates of the post 2008 crash world. Nothing much has changed, except there is now more debt.

So one way to look at yesterday’s Stats Canada Second Quarter 2011 National Balance Sheet Accounts would be the Bank’s view of things, Canadians are taking advantage of historically low-interest rates to buy houses and large ticket items at a lower price. This point of view, while interesting, is their point of view, my opinion is that Canadians may be digging holes too deep for their own means, should interest rates rebound in the near future.

The following graphic shows the net worth of each household in Canada is dropping again, which is caused by numerous things, but increasing debt and declining value of the things bought with debt are contributing factors. The stock market going nose-first into the ground is another large contributing factor, but if house value continues to drop, will it be worthwhile to hold large mortgages (even if they are at low-interest rates)? Something to think about (since in Canada you can’t easily just walk away from a mortgage).

Change in Household Net Worth Over the Last Little While

To quote our friends at Stats Canada:

Credit market debt of the household sector grew in the second quarter, as a result of both higher mortgage and consumer credit borrowing. The ratio of household credit market debt to personal disposable income ratio was up, as debt levels grew faster than the growth in personal disposable income. The debt-service ratio was unchanged from the previous quarter at 7.5%. Home owners’ equity as a percentage of real estate assets edged down further in the second quarter, as the credit market debt to net worth ratio increased for the fourth straight quarter to 24.4%.

Don’t worry, the populous of Canada is in the same boat as their government which has an increasing net debt at $772 Billion (up from $753 Billion), so I guess the government is enjoying cheap interest rates too? Maybe not, but Canadians seem to becoming gluttons on cheap money, but always remember, some time soon, the Piper is going to need to be paid and if you have borrowed at low-interest rates, can you afford the debt later?

The positive side of incredibly lower rates is that if you choose to start making over-payments to pay down the debt, your dollar is actually worth more, and maybe this needs to be pushed forward by banks and lending institutions as well? Yes, I am being sarcastic since they want us in debt (at least that is how it seems these days), and us not owing the banks money does not make the bank money, so it is almost not in the banks’ best interests for you to get yourself out of debt (keep that one in mind the next time you get a great offer for credit from your bank).

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