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Canadian households that are in the red owe an average of $92,699 according to BMO Economics’ annual debt report, released Friday. That’s up from $88,303, the average over the last four years that the bank has released the report based on polling conducting by Pollara.
Even with debt levels increasing, 46 per cent said they felt “some stress” about their debt, which is lower than the amount that said so in 2014 (54 per cent) and 2013 (57 per cent). Plus 59 per cent of those surveyed said they believed they will pay off their current debt in five years or less. The poll of 1,001 Canadians was conducted between June 19th and 22nd, 2015.
“Interest rates have been hovering around historic lows over the past few years, so many Canadians may have become more comfortable over time with managing their debt,” said Christine Canning, Head of Everyday Banking at BMO.
“That said, rates will inevitably rise to normal levels, so it’s becoming increasingly important that Canadians stress-test their ability to afford the debt they currently have so they can effectively manage their finances in a higher rate environment.”
But when will Canadians be forced to reckon with higher rates? Even BMO’s leading economists don’t believe the Bank of Canada will hike interest rates in mid-July. Given the contraction of Canada’s April GDP, Senior Economist Benjamin Reitzes noted that “Unless we get another massively positive jobs report on Friday, there’s a good chance Governor Poloz will cut rates at next week’s policy meeting.” Other major banks, such as TD and CIBC, also believe another rate cut is in the cards.
Nearly half of those polled for BMO, or 46 per cent, said they intended to take on more debt in the coming year, a further sign of Canadians’ increasing comfort with debt.
Still, there are signs of worry over interest rates inching up with 64 per cent indicating that they would be stressed if interest rates rose by two percentage points and one-quarter saying they would be very stressed.
“This is a worrisome side effect of a prolonged period of low interest rates and needs to be closely monitored, especially if rates continue to fall,” said Sal Guatieri, Senior Economist at BMO Capital Markets.