Sometimes, being number one isn’t anything to brag about—take Canada’s household debt situation, for example.
Driving the news: Canada tops the G7 when it comes to household debt as a share of GDP, according to a recently released report by the Canada Mortgage Housing Corp.
- The country’s household debt-to-GDP ratio is 107%, well above any other G7 country. In the US, that share is 78%, and in the UK, it’s 86%.
Why it’s happening: While households in the US and UK were paying down their debts, Canadian households were piling on even more, to pay for ever-more-expensive homes.
- Mortgages now account for three-quarters of Canadians’ debt, up from ~64% in 2010.
Why it matters: Lots of debt makes people more vulnerable to economic downturns. If you’re stuck paying a big chunk of your income to service debt, you have less cushion to manage financial setbacks (like losing a job).
- “When many households in an economy are heavily indebted, the situation can quickly deteriorate, such as what was witnessed in the US in 2007 and 2008,” CMHC Deputy Chief Economist Aled ab Iorwerth wrote in the report.
Zoom out: With home prices back on the rise and rents surging, many Canadians have little option but to rack up more debt. So long as the job market remains strong, this might be manageable, but if unemployment starts to rise—one of the expected effects of higher interest rates, remember—many people could quickly find themselves underwater.—TS