Canadian households devote an astronomical amount of income just to carry their debt payments. Data from the Bank of International Settlements (BIS) shows Canadian households have a very high debt service ratio (DSR). The ratio dropped in Q4 2020 slightly, but it’s still much higher than any other G7 country. Not even the US housing bubble reached this level in 2008.
Canadians Spend 12.4% of Their Income On Debt Payments
Canadians spend an astronomical share of their income on debt payments. The household DSR reached 12.4% in Q4 2020, down from 13.5% in 2019. It dropped, but this was entirely due to the fact interest costs have fallen. Household credit growth is still booming, and at a much faster rate than income.
Canadian Debt Payments Dwarf The US… Even In 2008
Contrasting with our neighbors to the South, we can see their DSR isn’t even close to Canada. US households had a DSR of 7.6% in Q4 2020, down from 7.9% in the same quarter a year before. They spend a third less of their income on servicing debt.
The US wasn’t always this low, and did at one point spend much more on servicing debt. During the 2008 housing bubble, the DSR reached 11.1% before the financial crisis. Carrying higher debt loads makes households less flexible. In an emergency, this tends to amplify the shock. That’s why it’s common to see highly indebted households when doing an autopsy on a bad recession.
Canadian Households Spend The Most Income On Debt In The G7
No other G7 country has households so highly leveraged, and paying this much towards debt. The UK is in second place with a household DSR of 9.0% in the fourth quarter of 2020, about 27.4% lower than Canadians. Excluding Canada, the average DSR for the G7 is just 6.9% — nearly half the size. It might seem like not all that much, but compared to other economies of similar size, it’s huge.
Household Debt Service Ratios Across The G7
The share of income households devote to making the required payments on debt, across the G7
Source: BIS; Better Dwelling.
Households and policymakers perpetuate what’s happening in Canada is normal, but it’s not. Households spend almost double the share of income on debt payments in the G7. Most of the debt is due to non-productive investment in things like housing. It was tapped to create an economic boom over the past few years, but puts households in a highly vulnerable position. The costs of which are often shared by those without much debt.
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You don’t even need to see this statistic to know it. You just need to talk to people in each of these countries. No one is obsessed with real estate more than Canadians. They have nothing else to talk about.
Agreed!
exactly. no future for the children in this country. either a govt job or leave for the USA. I work in IT at an exec level…salaries are 40% less vs USA
It’s weird when I talk to my friends in the US. Even the ones in big cities. People don’t talk about real estate constantly. Real estate in this country, and especially in Southern Ontario, has made people goddamn nuts
That’s with low rates. Imagine if the economy ever recovers? Oh boy.
Canadian debt is also different from American debt. Households are locked into 30 year mortgages, so they have low rate sensitivity. Canada is rate roulette. You could be paying a lot more interest.
Not that I think they’ll hike it and people will go bankrupt. It just won’t be the kind of return they were expecting, because the lender will figure out how to capture it. 5 years down the road, keep an eye out on how this plays out.
Paying off debt reduces the money supply. That’s good.
Very scarry graph, especially when we know wages everywhere have to drop to compete in the world economy.
CENTRAL BANKS in West have artificially suppressed wages to continue the illusion of 1st world living standards but all it did was blow hard assets (housing$) to the stratosphere and put canadian debt servicing costs super-high thus much higher wages needed. This will be a disaster for my kids, or anyone under 40. If you want look for blame, start with the BOC.
It’s national obsession. Poor or rich you have to buy any type of real estate in here. No one cares if you can’t afford it.
Why no one is talking about the elephant in the room, the Evergrade fallout and it’s impact on Canadian real estate?
I find more and more this site is just running headlines. Look at the graph, in the early 2000s we also had the highest %. So are we in a bubble, were we in a bubble, what does a bubble look like? Sales down, whoa. SLNL down, whoa. Prices up, ahhh whoa. Debt levels high, whoa. It’s like I’m watching an episode of ‘blossom’ and joey is stephen. Lol.
I find more and more people have a hard time deciphering the point, and fail to realize Canada is the only country that didn’t lever down it’s households as interest rates dropped 8 points from 2008, they got them to borrow more and more.
The stats are skewed as they include all income brackets. If you eliminate the top 20%, the ratio would be atrocious. There were some prior articles not long ago about the saving rate etc skewed to the top. I think the bottom 50% is in dire trouble given the inflation, economy of life support and the unknown future. This are about to get MUCH worst. If JT gets back in, watch out. We may all be emigrating to Mexico!
Very scarry graph, especially when we know wages everywhere have to drop to compete in the world economy.
CENTRAL BANKS in West have artificially suppressed RATES to continue the illusion of 1st world living standards but all it did was blow hard assets (housing$) to the stratosphere and put canadian debt servicing costs super-high thus much higher wages needed. This will be a disaster for my kids, or anyone under 40. If you want look for blame, start with the BOC.