Canadians owe more, but they have more too: StatsCan
By Andrew Seale
Published on Wed, 29 Apr, 2015
It’s no secret Canadians are an indebted bunch – recently hitting cantankerous record debt levels of $1.63 of credit market debt for every dollar of disposable income – but a new paper by Statistics Canada finds that the value of assets we’re spending on is also climbing.
While the median debt rose by 64 per cent between 1999 and 2012, median assets actually saw a bigger boost, rising by 80 per cent. According to the paper, over those 13 years the median debt held by families grew by $23,400 (in 2012 constant dollars) to $60,100. Median assets of those families – which includes things like employer pension and real estate –rose by $179,800 to $405,200.
“I think what it says to me, is the very large increase in house prices over the last number of years is what’s driving this, it’s pretty much the whole story,” says Matthew Stewart and economist and associate director of national forecast at the Conference Board of Canada.
He points to the discrepancies between age groups.
“All the increase in debt is people with mortgages, people in the 34 to 44 age group,” he says. “These are the people that are taking out mortgages, so it’s not surprising with the huge increase in house prices that we’ve seen.”
According to StatCan, families in the 35-to-44 year range saw debt rise 126 per cent over the 13 years while assets grew 77 per cent.
For families with children under 18, saw median debt more than double, growing by $87,000 over the near decade and a half. Median assets rose by $245,100, which is 86 per cent. Families without children under 18 saw debt rise by $42,500 and assets grow by 78 per cent ($253,200).
“Is it concerning? I don’t think so because the reason they’ve been able to take on more debt is because of the low interest,” he says. While the prime interest rate is 2.89 per cent, according to StatCan, at the beginning of 1999 the prime rate was 6.75 per cent.
“I think that’s allowed people to increase the amount they’ve spent on houses and that’s what you see in the assets too,” says Stewart. “As long as interest rates stay low it’s not a problem.”
But even if they do go up, it’ll be incremental and will likely take the steam out of house prices at a relatively slow rate.
“Most Canadians have actually locked in their mortgage rates right now,” he says. “So when interest rates are going up, in five years time they’ve paid off a lot of equity then.”
Stewart points out that while debt-to-income is a fine indicator, he’s more inclined to look at debt payment to income.
“I think when people decide how much house to buy, they’re not thinking ‘oh, this is my debt to income’,” he adds. “I think they’re thinking ‘what are payments going to be as a share of my income’.”
But debt is certainly on Canadians’ minds. According to a survey by PC Financial, buying and selling a home are the top financial stressors keeping Canadians up – at 51 per cent and 47 per cent respectively.
When pressed about how much they’d need in their savings account to sleep stress free, 54 per cent say between $2,000 and six-months salary is an appropriate cushion.
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