Some Important Numbers for Consideration

Low interest rates have enticed Canadians to borrow to buy big ticket items such as cars and houses that many are now stretched. According to today's Globe Business Report, the average debt per household, including mortgage and credit card debt has hit a high this year of $96,100, which is translated into the debt-to-income ratio of 146%.

According to the latest statistics from the BoC, the banks were holding $497 billion in residential mortgage loans to consumers in September. PwC’s survey on households with an annual income above $100k has found that 64% of respondents plan to cut their debt load in the next 12 months partly by deferring purchase of large-ticket items.

The higher debt level has made the Canadian economy more vulnerable to shocks such as a higher unemployment rate and declining house prices. The Canadian household debt level has alarmed the policy makers in Ottawa that they are now in consultation with executives from Bay Street firms to further restrict lending. However, in my opinion, this will only slow down the increase in the level of debt that households will take on and will not address the current household debt level, which is already at a record high. This might even make even more difficult for the households to refinnace their debts.

There you have it folks. Many Canadians are already tapped out on the level of debt that they are able to take on and expect more deleveraging. Prior to the credit crisis, the Canadian economy and pretty much all the other economies around the world for that matter had experienced phenomenal economic growths and housing bubbles out of debt rather than improving economic fundamentals, and now we are paying the price. By taking on debts, we have borrowed future prosperity for today and the whole economy will go through a withdrawal.