2017 was eventful. From the major security breach at Equifax, impacting more than 19,000 Canadians, to being manipulated by our banks into owing more debt than we should, we’re no longer able to trust that our financial choices will go the way we’re used to.
Home ownership has become a distant reality for many. The average price of a home in Ontario and across Canada is now over half a million dollars. In Ontario, prices have been on a bit of a roller coaster ride this year.
House prices are driving the cost of living to new levels. The Canadian Mortgage and Housing Corporation announced on November 29 that rent is increasing at more than twice the rate of inflation. Buying a home means taking on more mortgage debt than seems wise. According to recent Statistics Canada numbers, mortgage debt now accounts for 65.5% of all household debt.
If you think this means other consumer debt has been declining you would be wrong.
Auto loans are up almost 1.5% annually, while installment loans are up a whopping 5.3%. According to a study by RBC economics, interest payments on non-mortgage debt are equal to the total interest costs associated with mortgage balances, despite non-mortgage balances being lower. In other words, consumer credit is growing and it’s expensive.
The end result is that Canadians have accumulated a total of $2.08 trillion in household debt.
Needless to say, Canadians have had to accept a lot of new realities in 2017.
When we did our recap of 2016, Ted mentioned the milestones we reached in the last year were something to be worried about, stating that it’s just a dangerous scenario waiting to unfold.
Here we are in 2017, with more dangerous precedents. More money scenarios to worry about.
According to a recent Manulife Bank survey, more than half of Canadians said they have good knowledge of debt management. Yet debt to income levels have reached an all-time high to $1.71 for every dollar earned. Canadians want to be debt-free, with 64% saying its their top priority, but only 31% actually met their debt reduction goals.
Moreover, the Canadian Payroll Association’s recent survey results revealed that 49 per cent of Ontarians are living paycheque to paycheque. 43 per cent of Ontario employees save 5 per cent or less of their earnings.
The seeds have been planted for a crisis in consumer debt… and are now being watered in.
Low interest rates have allowed Canadians to comfortably take on more and more debt. But the rates are going back up now.
What’s more, the Bank of Canada just released in November that half of Canadian real estate mortgages will be renewed by next year, with many mortgage holders expecting a rate reset.
The debt to income ratio is already very high.
In Vancouver and Toronto, even a 1% increase in mortgage rates would mean almost a 10% increase on household income going towards mortgage payments. Highly indebted borrowers are certainly at risk once the rates reset.
Our debt levels aren’t going down any time soon. In fact, the Parliamentary Budget Officer is predicting the debt to income ratio will reach $1.80 by the end of 2018. So, we’re going to be owing a lot more and with a lot less flexibility for paying it down.
Looking at our infographic below, we know that:
- Household debt reached $2.08 trillion, up 5% from one year ago.
- The debt-to-income ratio reached a record high 171.1%, meaning Canadians now owe $1.71 for ever dollar they earn.
- There was a 4.4% decrease in insolvency. It’s the 8th year of year-over-year declines in consumer bankruptcies and proposals.
- 37% of Canadians feel overwhelmed by their debt, according to a survey by the Canadians Payroll Association.
- 56% of all new-vehicle loans are for 84 months or longer.
- The percentage of insolvencies filed by homeowners bottomed out at 6% in August 2017, according to the Hoyes Michalos Homeowner’s Bankruptcy Index.
- According to a TD survey, 27% of Canadians are unable to save any portion of their monthly income.
- 49% of Ontarians are living paycheque to paycheque, according to a Canadian Payroll Association September 2017 survey.
- 65.5% of household debt is mortgage debt.
- The Bank of Canada expects 47% of real estate mortgages to renew in 2018.