A housing bubble in Canada: Is it possible? (Part 8 of 10)
(Continued from Part 7)
Canada’s household debt is larger than US debt during the credit crisis
Canada’s growing household debt burden is another area of concern for the Canadian economy. According to a February 5, 2015, McKinsey Global Institute study of 47 countries, Canada had the second largest jump in the household debt-to-income ratio between 2007 and 2Q14—with the exception of Greece.
In Canada, household debt rose to 155% of income in 2014—up from 133% in 2007.
Canadians struggle under the burden of rising household debt
Canada (EWC) has higher household debt-to-income burdens than the other developed countries—the United Kingdom (EWU) and the US (IVV)—had during the credit crisis. According to the study, other major economies in a vulnerable debt position include the Netherlands (EWN), South Korea (EWY), Sweden (EWD), Australia (EWA), Malaysia (EWM), and Thailand (THD).
The study’s findings were based on data obtained on the various economies up to the second quarter of last year.
Rising household debt in Canada
Lower interest rates in Canada, in the aftermath of the financial crisis of 2008, led to an increase in household debt in the country.
In Canada, residential mortgage credit grew by 5.3% in 2014. Non-mortgage credit grew by 3%—according to a Royal Bank of Canada report dated February 4, 2015.
A Bank of Canada report dated December 10, 2014, stated that 40% of all household debt in Canada is held by borrowers who have a total debt-to-income ratio greater than 250%—compared to the Canadian average of 162.3%. This segment of the heavily indebted borrowers rose from about 6% in 2000 to about 12% in 2014.
Continue to Part 9
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