by Lawrence Thomas, Gold Telegraph:
Canada’s household debt of $2.16 trillion is spiraling out of control. Its debt load is the highest of the seven leading economic countries. After a decade of easy credit, Canadians are finding it difficult to make even minimum monthly payments or interest payments. The slightest financial emergency can turn a difficult situation into a long-term disaster. Canadians are scared, and rightly so. The average household in Canada carries a debt of more than $22,000.
Canada wasn’t always in a state of unmanageable debt. It weathered the 2008 financial crisis reasonably well. However, like many other countries post-2008, it substantially lowered its interest rates, sparking a run on easy borrowing. What followed was a debt to income ratio of 174 percent.
The Bank of Canada has raised its interest rates of 1.75 percent. This has slowed down some of the mindless borrowings, but the pain is far from over. Over 31,000 Canadian households have filed for bankruptcy during the fourth quarter of 2018 alone.
Thus far, the delinquency rate remains at below 1 percent, but auto loan delinquencies are the highest since 2008. Many Canadians are leasing instead of buying, with leases accounting for 36 percent of all auto loans.
The housing market has dropped well beyond the 2008 level. Buyers who invested in condos when borrowing was easy now find their home is worth less than when they purchased it. This shift in home prices raises some major concerns in a country already overburdened with debt. Home equity borrowing has ballooned to $243 billion, accounting for 11 percent of total household debt. Homeowners are experiencing a debt level that exceeds their home value.
Mortgages aren’t the only problem. Canadians finding themselves in emergency situations have turned to payday loans and are now facing enormous interest payments. Lenders are able to continue demanding payments even after a homeowner has abandoned the property, adding an extra layer of worry. Many Canadians have simply given up pursuing the goal of home ownership as many young people struggle with student and credit card debts. Canada’s student loan debt stands at $28 billion, with many struggling just to make interest payments.