Pop the champagne, because Canada passed a milestone in December – although the Canadian government was quiet about it. The Bank of Canada (BoC) discreetly released their Household Credit numbers, and Canada surpassed the $2 trillion dollar mark. This marks the highest level of debt Canadians have ever held, and the majority of it is due to real estate debt. Shocker, I know.
Canadians Set A New Debt Record
Canadians have accumulated a monumental amount of debt. According to the BoC, household debt rose to $2.005 trillion dollars in December 2016, a 5.2% year over year increase. This trend accelerated at a faster rate in December, averaging what would be a 5.8% increase if annualized.
The number is actually so large, most people I speak to don’t quite understand how big it is. It’s 9% higher than the total debt of all businesses in Canada. It’s also 18% higher than the GDP of Canada, and 30% higher per capita than our neighbours in the US. Actually, that number is so magnificently large, that the debt held is greater than the total wealth of the 9 richest people in history. All of history, not just recent. So if someone says it’s not all that bad, make sure you don’t let them give you any investment advice.
Canadian Consumer Debt
Source: Bank of Canada.
Residential Mortgage Debt
Yes, most of this was due to Canada’s thirst for real estate. CA$1.436 trillion represented mortgage debt, an increase of 5.9% from the same time last year. December, a slower month for real estate sales, saw debt accumulation accelerate faster. If annualized, the change for the month would be 6.8%. How exactly Canadians purchased less real estate in December, but accumulated debt faster will be a mystery for the ages.
An interesting number in the package was Consumer Credit, which is personal debt. This is debt from credit cards, personal lines of credit, auto loans, etc. – a.k.a. non-mortgage debt. This number rose $3 billion dollars, increasing household consumer credit to $569 billion. Roughly a 3.4% increase from the same time last year. This is actually the only debt indicator that slowed down in December, with an increase of 3.3% annualized. That’s right, Canadians owe more than one dollar in personal credit for every 3 dollars in mortgage debt.
The growing levels of debt is worrisome on its own, but the acceleration is terrifying. One of the slowest months for real estate sales resulted in an acceleration of consumer debt. Canadians are borrowing record amounts of debt to pay for shelter, diverting financial resources from the rest of the economy. No one’s sure when Canada’s real estate addiction is going to end, but it won’t be pretty when it does.
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