credit and debt
A MORE AFFORDABLE DEBT ENVIRONMENT The run-up in Canadian household debt has no precedent. But with interest rates still near historical lows, it’s costing us less now than before the pandemic to pay for what we owe.
Just like public debt, household debt has risen dramatically over the past year (a recent estimate from BMO indicated Canadians now have more than $2 trillion in debt tied to their homes). This is a product of low interest rates and Canadian’s active participation in our housing markets, which in turn has resulted in rising prices and ever-larger mortgages. Some context can help us better understand why Canadians are in fact objectively less burdened by debt today than they were before the pandemic.
Specifically, Canada’s Total Debt-Service Ratio (DSR) currently sits at 13.5% (representing the proportion of gross income allocated to servicing debt), which is up from the recent floor of 12.1% but is 10% lower than its pre- pandemic level of 15.0%. Both the mortgage and non-mortgage DSR are below levels from 2 years ago, indicating that Canadians— perhaps improbably—have a little additional financial buffer to work with these days.
DEBT IS UP, BUT THE COST OF SERVICING IT IS DOWN
16%
15.03%
14.87%
14%
13.45%
12%
12.14%
10%
10.59%
8.75%
8.21%
8%
6.82%
6.88% 6.56%
6%
5.74%
5.07%
4%
4.34%
1.75%
2%
0.25%
0%
NON MORTGAGE DEBT
MORTGAGE DEBT
TOTAL DEBT
BOC TARGET RATE
SOURCE: STATISTICS CANADA. TABLE 11-10-0065-01 DATA: PROPORTION OF DISPOSABLE INCOME GOING TO DEBT SERVICE, CANADA
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