Here’s a novel idea — Canada’s household debt might not be as bad as everybody thinks
Record levels of Canadian household debt have sparked concern it’s a bubble in the making, but leverage may actually be more conservative than people think, according to one of the country’s largest commercial lenders.
Household debt ratios and the rapid pace of home-price growth in Canada aren’t abnormal compared with global peers, National Bank of Canada said, citing data from the federal statistics agency that show the country’s economy is expanding at the fastest pace in the Group of Seven and job growth is surging.
Toronto and Vancouver home prices have soared in recent years and Canada’s debt-to-disposable income ratio is at an all-time high, but the numbers don’t seem so extreme when compared with other global cities such as London or Hong Kong that have higher prices and ratios, National Bank economists Stéfane Marion and Matthieu Arseneau said in a report Thursday. Population growth will also continue to strengthen Canada’s economy, especially as immigration policy stokes demand for housing in the fastest-growing markets.
“After controlling for fundamentals such as employment, population growth, housing tenure, immigration, education and the solidity of the welfare system, our analysis suggests that the ratio of household debt to disposable income in Canada is relatively conservative,” Marion and Arseneau wrote. “This probably reflects the cumulative effect of all actions taken to date to mitigate the vulnerability of the financial system to household indebtedness.”