Is record household debt a problem for home owners?

Continuous bad news about rising Canadian debt has been making headlines for the past few years – and now we’re hearing over and over again that mortgage debt has reached epic proportions.

Is all of this negativity accurate? We decided to find out by asking some credible sources.

The truth about household debt.

It is true: the overall household debt of Canadians is at a record of $1.5 trillion, growing from $147 billion in 1982. Two-thirds of the increase from 1982 - 2010 occurred from 1999 - 2010.
The largest component of debt among households is residential mortgages which account for two-thirds of all household debt.
The debt has kept pace with home prices, and is larger in BC and Ontario than other provinces.
In 2010, residential mortgages represented about 68% of total household debt. This compares to a low of 63% in 1971 and a high of 75% in 1993, during the 1971- 2010 period.
The largest component of debt among households is residential mortgages which account for two-thirds of all household debt. This debt has kept pace with home prices, and is larger in BC and Ontario than other provinces.
In 2010, residential mortgages represented about 68% of total household debt. This compares to a low of 63% in 1971 and a high of 75% in 1993, during the 1971 – 2010 period.

Why have we seen high mortgage debt?
The reasons include:

  • historically low interest rates which allowed households to increase borrowing activity including home equity loans for home improvements, cars and vacations;
  • rising household income and net worth which allowed households to borrow larger amounts
  • financial product innovations (low down payments and longer amortization periods) that let Canadians carry a larger debt load, since they allow for lower monthly payments;
  • rising home prices boost debt since larger amounts must be borrowed; and
  • beginning in 2009, sudden lower income growth as a result of the global economic depression.

Mortgage holders are also typically younger, who have bought their home within five years, and who carry higher mortgage debt than those who have been in their homes longer.

How does mortgage debt compare with other debt?

  • In 2010, residential mortgages represented 58% of total household debt held by chartered banks. Consumer credit accounted for 42%. 
  • Credit cards as a share of household debt held by chartered banks remained constant from 1982 to 2010 at 7% per year.
  • In 2010, the share of personal loans significantly decreased to 10% from 39% ion 1986.
  • In 2010, the share of personal lines of credit increased to a whopping 25% from 3% in 1986 indicating that consumer and credit card debt has considerably outpaced mortgage growth.
  • CMHC s mortgage arrears rate is 0.42%

 

Annual Growth Rates of Canadians’ Debt

Year

Total Household Consumer Debt

Total Household Mortgage Debt

Total Household Debt

1981 - 1990

8.3%

10.7%

10.0%

1991 - 2000

7.2%

5.5%

6.0%

2001 -  2010

9.6%

9.3%

9.4%

 

Excerpt from January 2012 Edition of Realtor Link, Volume 13, Number 01

The data relating to real estate on this website comes in part from the MLS® Reciprocity program of either the Real Estate Board of Greater Vancouver (REBGV), the Fraser Valley Real Estate Board (FVREB) or the Chilliwack and District Real Estate Board (CADREB). Real estate listings held by participating real estate firms are marked with the MLS® logo and detailed information about the listing includes the name of the listing agent. This representation is based in whole or part on data generated by either the REBGV, the FVREB or the CADREB which assumes no responsibility for its accuracy. The materials contained on this page may not be reproduced without the express written consent of either the REBGV, the FVREB or the CADREB.