Photo: James Bombales
Canadians have some of the highest household debt levels in the world, and Ontarians are no exception. According to one watchdog group, the province’s household debt levels are getting out of hand, and could affect the housing market in coming months.
Today, Ontario’s Financial Accountability Office released a report showing that household debt has grown by an average of 5.6 per cent per year since 2010.
In 2011, the average Ontario household owed $119,000 — in 2016 it was $154,000. The report attributes the majority of the growth in household debt to residential mortgages.
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During that same period, household income only grew by an average of 3.4 per cent per year.
The OFAO indicated that years of historically low interest rates could be to blame for the high levels of debt. But interest rates are on the rise — the Bank of Canada hiked the overnight rate to 1.25 per cent just last week. Mounting household debt combined with steeper interest rates could be bad news for Ontario homeowners and, in turn, the housing market.
So should homeowners be worried about this trend? Industry watchers have varied opinions on the subject.
Earlier this year, Toronto-based credit ratings agency DBRS released a report saying that Canadians should brace for worse refinancing conditions for their mortgages.
“Canadian households have become used to rates declining and staying low,” reads the report.
Others are less worried about the debt levels. Speaking with BuzzBuzzNews during a Facebook live interview, Ontario Real Estate Association CEO Tim Hudak said that, while household debt might seem high, there’s no indication that the real estate market is in trouble.
“We don’t see the things we saw during the U.S. housing crisis [of 2008],” Hudak told BuzzBuzzNews. “We don’t see people defaulting on their mortgages, for one — in fact, it’s actually the opposite, the rate of defaults is very low.”
National bank chief economist Stéfane Marion and senior economist Matthieu Arseneau agree. The pair write in a recent note that, given Canada’s strong economic fundamentals, the debt levels are in fact on par with other G20 countries.
“Household debt in Canada is seen by some as unsustainably high and a source of vulnerability for the financial system,” write the pair. “But the international evidence suggests that Canadian household leverage and home prices are not abnormal.”