Canadians are carrying alarmingly heavy Debt

Dec. 16, 2010 - PRLog -- Toronto | www.WorldWealthBuilders.com | www.preigCanada.com |

Canadian household debt, which includes mortgage debt, is now 148 per cent of disposable income, up from 142 per cent in the second quarter of 2009 and nearly triple the level in the mid-1980s. Canada's figure is higher than the level in the United States right now -- 147.2 per cent. U.S. debt levels peaked at about 164 per cent in 2007 ahead of the financial crisis the following year.

Canadian household debt as a percentage of disposable income is now higher than U.S. levels for the first time since 1998, and everybody from Bank of Canada governor Mark Carney to Prime Minister Stephen Harper is sounding the alarm.

“This shall alarm Canadians and remind them whenever you carry heavy debts with such low interest rates, as sudden interest rate hike can bring financial disaster. This can have ripple effect” says Navtaj Chandhoke, founder, Professional Real Estate Investors Group (PREIG) Canada.

Canadians are also earning less, or have less personal disposable income, as the recession reduced the level of high paying full time jobs across the country.

During the last quarter, Canadian household debt rose to $1.5 trillion, up from $1.48 trillion reported the previous quarter. The details on how much we borrow, what we spend and what we are worth were laid out in Statistics Canada’s reported.

Household net worth during the quarter grew 2.7 per cent, or $162 billion, to $6.1 trillion, following a 0.5 per cent decline reported during the previous three months. The boost marked the strongest quarterly growth in household net worth in 12 months, Statistics Canada reported.

Bank of Canada governor Mark Carney repeated warnings to Canadian households and businesses don't be lulled by current low interest rates, because repercussions from a hike could be swift. Carney is keeping rates low because the Canadian economy is still feeling the effects of slow growth and tough times with its major trading partner, the U.S. Exceptionally low rates are causing Canadians to take on spectacular amounts of personal debt.

When rates do begin to rise again, Carney said, the repercussions may be fierce and have the potential to catch many with debt loads they can no longer afford. Bank of Canada must raise rates gently, when it becomes necessary, so as to cushion the blow to homeowners carrying large debt. Do it too quickly and Canada sees a wave of mortgage foreclosures that could threaten the recovery.

We all witnessed how unmanageable debt worked in the U.S. Americans lost their homes, derivatives fell apart and the world got its Debt Crisis of 2007-'08 and the subsequent Great Recession similar to World’s worst recession of 1930.The nightmare is not over yet. The record number of foreclosures is still reflecting the current economy of the US.
Huge debts cause enormous hardship. Canadians carrying large debts can't consume. In the long run, even if they can meet their mortgage payments, they can't purchase much beyond the basics. That doesn't create economic growth in Canadian economy.

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Navtaj Chandhoke is a Canadian-based real estate investor, speaker, author, educator and the founder of World Wealth Builders, leading RE investors education,mentoring, support and network of over 4545+ Canadian investors. www.preigCanada.com | www.WorldWealthBuilders.com |