Canadian debt-to-income ratio reaches record high

(December 17) In the third quarter of 2016 the Canadian household debt to income ratio rose to a record high as borrowing continues to increase faster than incomes.

According to Statistics Canada the ratio went up from 166.4 percent in the second quarter to 166.9 percent in the third. This means that for every dollar of income earned by a Canadian household almost 1.67 is owed in debt. However, Benjamin Reitzes, an economist at BMO Capital Markets said the half percentage point increase was actually below seasonal norms and the smallest increase in the third quarter since 2000. Reitzes thinks that the ratio could flatten somewhat in 2017 especially as in areas such as the Vancouver housing market has cooled, and restrictions on mortgage may slow down activity a bit in 2017. Statistics Canada reported that in the third quarter, adjusted disposable income increased by 1.0 percent while debt rose by 1.3 percent.

By the end of the third quarter total household market debt rose to a humongous $2.004 trillion. Mortgage debt was almost two thirds of this total amount. However, the debt service ratio decreased from 14.1 percent in the second quarter to 14.0 percent in the third. The ratio is of payment obligations as a proportion of disposable incomes. In spite of the increased debt the net worth of households rose 2.5 percent in the third quarter to $10.33 trillion caused mainly by a 3.2 percent rise in the value of shares, life insurance and pension assets. Other assets mostly real estate rose 1.2 percent.

Laura Cooper an economist at the Royal Bank noted that the household saving rate had also increased 5.8 percent in the quarter, the highest level since 2001 and a full percentage point above last quarter. However, she said that the higher debt to income ratio will convince the Bank of Canada to warn people about increasing household indebtedness.

An article in BNN by Pattie Lovett-Reid points out some of the reasons why household debt has been increasing and points out that a day of reckoning may be coming for many. A main factor in increasing debts is the very low interest rates available and enticing offers including no interest payments for some time. She notes that the high levels of debt are to a considerable extent among middle and high income earners. The debtors can manage their debt load as long as the status quo remains. However, if interest rates go up and the economy weakens they could be in trouble. This is a risk for the economy as well since as this group borrows less, demand will decrease and eventually production as well. If either interest rates increase, unemployment increases, or inflation strikes, these debtors may have problems still managing their debt. She thinks that measures of debt by income, age and region, such as are provided by the C.D. Howe Institute give you a more meaningful picture of the debt situation than just the household income to debt ratio. Lovett-Reid concludes: we need to take control of the variables that are within our power; spend less, save more, focus less on national headlines and more on our own household debt burdens. I believe we all have a willingness to repay our debt but I worry about our decreasing ability to repay the trillions of dollars we owe.

A recent Bank of Canada report flags rising home prices as a key factor in many Canadians entering the ranks of the highly indebted. In the third quarter almost half of those taking out mortgages in Toronto were considered highly indebted. Their loan to income ratio was over 450 percent. While Vancouver has seen a slowdown as the market becomes more expensive for foreign buyers still 4 in 10 taking out mortgages had loan to income ratios of over 450 percent. Stephen Poloz claimed that Ottawa's policy of tightening mortgage regulations will bear fruit over time.

Canada's population aging but toddlers surging too

Canada now has a higher proportion of seniors than ever before but at the same time the number of Canadians under five has also grown. The under five group has grown by 1 per cent a reversal of previous trends.

Laurent Marter from Statistics Canada said:"I wouldn't call it a baby boom, although I think we can call it a significant increase," But the most prominent increase is in people over 65.

In the last five years people over 65 have grown by 14.1 per cent. At the same time population growth overall has been just 5.9 per cent. The group is poised to grow even faster.

People aged 60 to 64 is the faster growing group increasing by 29.1 per cent since the last census five years ago. In contrast those under 15 grew by just .5 per cent. In a short time Canada will have more seniors than children.

. The median age in Canada is 40.6 the highest ever. Two decades ago it was 33.5. The Atlantic provinces and Quebec are aging more quickly than the west. In the Prairie provinces the proportion of seniors did not change at all. Perhaps this is because many seniors on the prairies move to more temperate climates such as BC. For much more see this CBC article.

Canadian debt goes up and net worth goes down

  Statistics Canada released figures showing that the net worth per household dropped by $4,600 (Canadian) last quarter mostly because of declines in the value of equities and pension assets. In spite of  relatively hard times Canadians have continued borrowing. Over a year the per capita debt has risen by $2,200 dollars to a total of $46,100. The total is a humongous 1 trillion dollars in mortgages plus another 448 billion in consumer credit.
    The governor of the Bank of Canada warned Canadians they must ease up on spending as the level of debt averages over 150 per cent of income as the most recent Statistics Canada figures show. Net household worth has been declining as debt has been increasing. In the third quarter of this year net household worth dropped 2.1 per cent. This is the second consecutive quarter in which net household worth has declined.
   Government debt has also been rising. In the second quarter government net debt was 46.3 of GDP but this last quarter was 46.9 per cent of GDP. This is still quite moderate compared to many countries. Canada's problems may be more with consumer debt. Consumers saddled with large debts in a sluggish or declining economy are not a recipe for growth or even social peace. For more see this article.

New Vehicle Sales down in Canada

Household debt is at record levels in Canada so it is not too surprising that big ticket items such as new cars should be recording a dip. What is more surprising is that they have been increasing over the last few months. This is from the VancouverSun.

New vehicle sales down in Canada: StatsCan


...






OTTAWA — The number of new vehicles sold in Canada dropped in March by 4.2 per cent, with a sharper decline in truck sales a major factor, Statistics Canada reported Friday.

The decrease to 132,867 vehicles sold sliced gains made in February — when an increase of 8.1 per cent was reported — by nearly half, with all but one province posting a drop in new vehicle sales.

The federal agency said new truck sales — which also factor SUVs, minivans, vans and buses — fell 5.7 per cent to 67,960 in March, but continued its "upward trend" that started in early 2009.

Passenger car sales fell 2.5 per cent to 64,907, with a sharp decline of 5.7 per cent in North American-built vehicles negating a 1.5 per cent increase in sales of foreign vehicles, which registered its third straight monthly gain in sales.

Saskatchewan felt the largest swing in new vehicle activity, recording a 14.1 per cent decrease in sales after three consecutive months of reported gains.

Ontario, with a drop in sales of 4.2 per cent, was largely responsible for the national decline. In March, 48,881 new vehicles were sold in Ontario, down from just over 51,000 in February.

Nova Scotia and Manitoba also experience double-digit percentage declines, with decreases of 13 per cent and 11.7 per cent, respectively.

British Columbia, which also encompasses the territories, declined 0.9 per cent, marking the fifth consecutive month that region has experienced a drop in new vehicle sales.

Prince Edward Island — which reported an increase of 7.6 per cent — was the only province to register gains in March. It was the first increase in sales since December 2009 for Canada's smallest province.

© Copyright (c) Canwest News Service

The National Post, Neo-conservative policies, Statistics Canada

This is an excerpt from an article in the Star by Linda McQuaig. McQuaig once wrote for the National Post! This article shows how the richest have managed to increase their share of income after losing share earlier in the century. It should also be noted that welfare state entitlements have also been erode by neo-conservative policies. The Post is representative of mainstream media that support neo-conservative and neoliberal policies.

Neil Brooks, a tax professor at Osgoode Hall Law School, notes that during this era the share of income received by the richest 1 per cent actually declined – from about 20 per cent in the early part of the century to about 7 or 8 per cent by 1980. The rich didn't like this, and have been waging a kind of class war ever since, convincing governments to impose "neo-conservative" policies like lower minimum wages, tighter monetary policy, less social insurance protection, open markets and shifting the tax burden from capital to labour.
The results have been grim for many Canadians, but spectacular for the rich, particularly the very rich. During the last quarter century, the richest .01 per cent of Canadians saw their real incomes rise on average from $2.9 million to $5.9 million – an increase of $3 million!
Those defending the neo-conservative policy package typically argue it's been necessitated by "globalization" – even though many European countries have avoided this path and are competing nicely in the global economy.
As the class war rages on, embedded journalists over at the Post are busy defending the neo-conservative cause. In his column last week, the Post's Terence Corcoran suggested StatsCan had distorted the picture by using data on individual earnings, rather than on total family incomes, where there have been some modest gains among the non-rich since 1980.
This is curious, coming from the Post. Total family incomes include social transfers – but the Post typically argues for reduced social transfers. The family income data show how important social transfers are.
Furthermore, family incomes have mostly risen because, with far more women working than in 1980, families now typically have two incomes.
So let's get this straight: Even as neo-conservative policies have helped the ultra-rich increase their incomes by an average of $3 million, the Post thinks Canadian families should be content with earning a little more than they did 25 years ago – by working twice as much.
Luckily Canadians have the Post to help them see how really well they're doing in this neo-conservative age.