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Household debt in Canada reaches highest level amongst all G7 countries

New data released on Tuesday suggests high home prices are to blame for ballooning household debt in Canada, which now ranks as the highest of any other G7 country.

It means Canadian households owe more in value than the value of the country's entire economy. 

The report from Canada Mortgage and Housing Corporation (CMHC) warns that Canadians would not be able to weather a recession because of the high amount debt they owe.

CMHC deputy chief economist Aled ab lorwerth says the country's debt has been rising "inexorably" as mortgages currently make up about three-quarters of household debt.

While household debt made up 80 per cent of the size of the overall Canadian economy during the 2008 recession, it rose to 95 per cent in 2010 and by 2021 debt exceeded its size, he noted.

"By contrast, household debt in the U.S. fell from 100 per cent of GDP in 2008 to about 75 per cent in 2021," wrote ab lorwerth.

"While U.S. households reduced debt, Canadians increased theirs and this will likely continue unless we address affordability in the housing market."

Over the same period of time, household debt also dropped in the U.K. and Germany and was nearly unchanged in Italy. 


Closer to home, the average cost of a single-detached home as of May 2023, according to the Calgary Real Estate Board, is $739,572.

That marks a 13 per cent increase from the month of May in 2022.

Laurie Campbell, a financial literacy expert with more than three decades of experience in Canada, notes that the COVID-19 pandemic played a key role in advancing household debt.

She says creditors were on the sidelines during the pandemic and unable to get rid of debt, but that trend has led to rising inflation and interest rates.

"We're still at low rates, but considering that people are renegotiating their mortgages or getting into mortgages at a higher rate, that's certainly a huge factor," she said.

"The economy is stable, but incomes are not matching inflation or interest rates, so individuals are using credit to bridge that gap between income and expenses and now we're seeing the full explosive result of this."

Campbell adds that some individuals that want to sell their home are now perhaps even looking at a lower-valued home with higher debt levels than they've ever had.

She says insolvency rates are back to pre-pandemic levels and will likely increase over the next several months.

"I think we've done a poor job of really helping individuals understand the impact of higher costs across the board," Campbell said.

"Through the pandemic, we had (the Canada Emergency Response Benefit)to prop people up for good reasons, but at the same time, it gave us a false sense of security."

Not all debt is bad, according to ab lorwerth. He says high levels can do significant damage when a recession or other negative economic events happen, leading to do job losses and further mortgage pay back difficulty.

"Canada is safeguarded by a sound institutional framework and prudent financial regulation," he said.

"This ensures that most Canadian borrowers would be able to withstand currently-elevated mortgage rates. But, in the event of a severe global economic downturn, Canada's high household debt will be a vulnerability." 


A recent report from RBC Economics indicates a looming recession and an unemployment rate projected to climb to 6.6 per cent by early 2024, which could tip more Canadians into loan delinquencies and insolvencies.

Mortgage arrears – defined as a mortgage payment that is overdue for three months or more – still remain low in Canada. That being said, the RBC forecast shows the rate of consumers over 90 days late on debt service payments has risen for installment loans, credit cards, auto loans and lines of credit.

Victor Tran, mortgage and real estate expert with says mortgage delinquency increases are concerning, but still remain at the lowest level in decades.

He notes, however, that Canadian homeowners in the unfortunate position of having to sell their home should consult professionals in advance if they're in dire financial stress.

"Really sit down and analyze your finances, look at how much money you have left to cover your mortgage payments, taxes, utilities, groceries, transportation… all the other costs that you need to pay for to live day to day," said Tran.

"Breaking out of a mortgage also dips into your profit margins, so be wary of that, because after paying legal fees and what not, penalties can be quite large."

However, that it's not all bad news for those unable to cover the cost of their mortgage and forced to sell their home. 

Tran says with tight supply for houses and increasing immigration, the demand for homes is driving prices up and it's still a sellers market.

"Many regions across the country has seen housing values increased significantly, especially in Ontario, and BC., so fortunately, for many homeowners that have racked up a lot of unsecured debt, they have been able to take advantage of the rising equity to consolidate a lot of the unsecured debt," Tran said.

"I've helped many clients refinance by paying off lines of credit, car payments, or whatever the case is, and they've only been able to do that because of the incredible real estate market that we've experienced in the past 15 odd years so far."

With files from The Canadian Press Top Stories

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