5 Reasons Why Canadian Household Debt Panic Might Be Overblown
November 20, 2012
This week’s MonsterMortgage.ca video blog takes a look at a recent Financial Post article outlining Gluskin Sheff chief economist David Rosenberg’s 5 reasons as to why the panic over Canada’s household debt is overblown.
The 5 main points made by economist David Rosenberg are as follows:
- 1)Canadian debt/income ratios are skewed. Rosenberg argues that since Canadians pay for their health care through their taxes, the average Canadian’s disposable income is distorted relative to that of a U.S citizen.
- 2) Canadian household debt to asset and debt to net-worth ratios are actually lower than previous peak highs. Rosenberg adds that he estimates there would need to be a 20% reduction in the Canadian housing market “to get net worth/income ratio down to the U.S. level.”
- 3) Canadians enjoy more equity in their homes than their American counterparts. The statistic — Canadians have equity in their homes upwards 69% compared with 43% in the U.S – signals Canadian’s current capacity to carry household debt.
- 4) Rosenberg argues that Canadians are better able to service their debts. Canadian wage growth has been growing twice as fast as it has in the United States. Canadians experience a yearly 4% wage growth while debt growth in Canada has been slowing tremendously – the slowest in over a decade in fact.
- 5) “The debt-servicing ratio in Canadian households is now just over 7% — a level it has only been below in the past 15% of the time.” Debt-service ratios are a strong signal that Canadians are able to generate enough income in order to cover their debts.
Whether you agree or disagree with Rosenberg’s sentiments, it is refreshing to get an alternative look at Canada’s economic status – when supported properly with facts and statistics of course.
If you have any questions or comments regarding your thoughts on the current status of Canadian household debt or what you thought about the article – feel free to send an email to Kristian@monstermortgage.ca or share a comment below.
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