•   
  •   
  •   

Money Canadians’ debt stops growing, and all it took was a collapse in new mortgages

19:51  14 september  2018
19:51  14 september  2018 Source:   huffingtonpost.ca

Financial Security Survey Finds Nearly 1/2 Of Canadians Couldn't Handle Week's Delay In Pay

  Financial Security Survey Finds Nearly 1/2 Of Canadians Couldn't Handle Week's Delay In Pay Canada's strong economy over the past year is doing little to help working Canadians out of their debt trap, according to a new study from the Canadian Payroll Association. In a poll carried out for the group this summer, 44 per cent of respondents said it would be difficult to make ends meet if their paycheque was delayed by even a week.That's actually a slightly lower share than in the previous several years, when 48 per cent, on average, said they would struggle with a one-week pay delay.

Related video: 3 budget tips for staying under budget [Provided by Cityline] 

Rising interest rates and tough new mortgage rules have achieved what Canadians themselves couldn't: A halt to relentlessly rising debt levels.

But the flipside of this new-found fiscal responsibility is slowing consumer credit. Statistics Canada data, released Friday, shows mortgage growth in the second quarter dropped by 33 per cent compared to the same period a year earlier, hitting its lowest level since 2003.

It’s been 10 years since the Financial Crisis. Are we going down the same path again?

  It’s been 10 years since the Financial Crisis. Are we going down the same path again? Joe Chidley: Another crisis will hit, and we won’t necessarily know where it will come from or how severe it will be . And then we’ll find out just how sturdy the underpinnings of our decade of stability really are.

Consumer credit credit cards, lines of credit and so forth also dropped, though by a less steep 6.3 per cent.

a close up of a keyboard © Provided by AOL Inc.

StatCan reported that Canadian households' credit market debt was 169.1 per cent of disposable income in the second quarter. Canadians owe slightly more than $1.69 for every dollar of annual income.

While that's up about 0.8 percentage points from the first quarter, it's down from 169.7 per cent a year earlier. Household debt is now holding steady, relative to paycheques.

a screenshot of a cell phone © Provided by AOL Inc. Household debt "appears to have finally turned the corner from all-time highs," Bank of Montreal economic analyst Priscilla Thiagamoorthy wrote in a client note.

"The key takeaway here is that borrowing cooled with the housing market as households adjusted to a slew of policy changes including tighter mortgage rules and gradual rate hikes."

Key household debt ratio creeps higher

  Key household debt ratio creeps higher Key household debt ratio creeps higherOTTAWA - The amount households owe, relative to their income, crept higher in the second quarter, even as mortgage borrowing continued to slow, Statistics Canada said.

New mortgage "stress tests," introduced at the start of the year, are estimated to have shaved some 21 per cent off the amount Canadians are able to borrow for a home.

And rising interest rates mean borrowers probably aren't feeling any less indebted. StatCan's data shows that, despite the decline in the debt ratio, the percentage of income that households are spending on debt payments is holding steady.

The average debt payment, including mortgages and non-mortgage debt, was 14.2 per cent of average disposable income in the second quarter, up from the first quarter but exactly the same as a year ago.

"While the interest component is expected to grind higher, a healthy labour market and a rising household incomes should keep the debt load manageable and keep the BoC on a gradual rate hike path," Thiagamoorthy concluded.

Earlier on HuffPost Canada:

  • Why Are Mortgage Rates Going Up Now?
  • Did You Fib On Your Mortgage Application? There Might Be Trouble Ahead

The Bank of Canada has already hiked its key lending rate four times in the past 14 months. Observers largely expect the next rate hike to come in October.

David Olive: Ten years after the Great Recession there is good reason to worry

  David Olive: Ten years after the Great Recession there is good reason to worry David Olive: Ten years after the Great Recession there is good reason to worryIn a month that marks the 10th anniversary of the Great Recession, it’s worth assessing the progress – or lack of it – that has been made in preventing another economic catastrophe.

So far, the slowdown in mortgage lending hasn't hurt Canada's major banks. They saw their profits jump by 9 per cent collectively from a year earlier in the latest quarter, according to credit ratings agency DBRS.

StatCan data also showed that households' wealth is rising once again. Total household net worth increased by 1.1 per cent in the second quarter, after falling 0.2 per cent in the previous quarter.

Household wealth has grown at a slower pace in recent quarters, thanks to more slowly growing house prices, StatCan said.

This article originally appeared on HuffPost Canada.

Follow @MSNMoneyCanada on Twitter. 

What a Fed rate hike means for you, at any age .
No matter your age, what the Federal Reserve does to interest rates will most likely affect you. The central bank raised what's called the federal funds rate by a quarter of a percentage point to a range of 2 per cent to 2.25 per cent Wednesday, the third such increase this year.An increase creates a ripple effect for rates on a variety of loans and investments."Interest rates are going up across a broad range of consumer borrowing," said Fed Chairman Jerome Powell at a press conference following the rate increase. But Powell pointed out that rates are "still quite low by historical levels.

—   Share news in the SOC. Networks

Topical videos:

This is interesting!