Canada's Housing Bubble

Jun 14, 2011 JULIEN RUSSELL BRUNET theglobeandmail.com

Household debt has hit a record high of $1.5-trillion, according to the latest research report from the Certified General Accountants Association of Canada (CGA-Canada).

Although consumer spending declined in the first quarter of 2011, many Canadians are continuing to falter, weighed down by their daily living expenses. In fact, the study says, if household debt was spread evenly across all Canadians, a family with two children would owe an estimated $176, 461, including mortgage costs, the report said.

“The debt of a typical household is rising,” says Rock Lefebvre, CGA-Canada’s vice-president of research and standards and co-author of the report. “And the financial situation of certain groups of households is much worse than average and continues to deteriorate.”

The study documents some startling trends.

Single-parent families, retirees, and those households with an income of $50,000 and under are in particularly dire straights. While the single-parent family is the only category listed in the report where debt climbs with age, one-third of retired households carry an average debt of $60,000. Meanwhile, households with an income of less than $50,000 are six times more likely to be vulnerable in terms of debt-service ratio.

The debt-service ratio shows the current cost of servicing debt and assesses individual’s capacity to honour debt obligations.

Although the government has taken a number of steps in the right direction, Mr. Lefebvre added, household debt remains a disconcerting problem.

“It’s important that the dynamics of household indebtedness remain high on the radar of policy makers,” he said, “particularly when it comes to policies and incentives that encourage Canadians to improve their finances.”

Some other interesting points in the study:

– The debt-to-income ratio in households reached a record high of 146.9 per cent in the first quarter of 2011, compared to 144 per cent in late 2009.

– About 27 per cent of non-retired Canadians commit no resources whatsoever to savings, even for retirement.