RBC has published its latest Economic Outlook in which it highlights the challenges that Canada faces, including those from other economies.
On household debt, chief economist Craig Wright said: “Along with an increase in spending, Canadians continued to take advantage of low borrowing costs during the first half of 2015, with household debt balances rising at the quickest pace in more than two years.
"That said, historically low interest rates and, to a lesser extent, sustained income gains have kept the costs to service these debt balances at a record low.”
For the housing market the mortgage lender is optimistic. Low interest rates continue to stimulate demand in 2015, despite oil price declines and a glut of condos in some areas.
The market is not performing well universally though and the report highlights Alberta and Saskatchewan’s falling sales.
Overall, though home resales at the national level are expected to rise by 5% in 2015, making it the second-highest level on record, with home prices to rise by 4.6% in 2015, little changed from 4.8% in 2014.
With interest rates expected to rise in 2016, RBC anticipates that there will be a slight easing in resale activity, slowing to 3.2%.
Wednesday, October 7, 2015
Canadians are borrowing more, but much of what they owe is “good debt,” a new report suggests.
The average amount of debt Canadians now hold rose significantly to about $93,000 in June from $76,140 a year earlier, according to a recent report released by Bank of Montreal. The report, which looks at major contributors to overall household debt in the country, found credit card debt and mortgage debt listed as the top two types.
Of the Canadians surveyed, 80 per cent said they are in debt. While the percentage stayed the same as last year, so-called “smart purchases” such as home purchases, home repairs/renovations and education expenses topped the list of debt sources for Canadians.
Forty-nine per cent of Canadians said buying a home was a significant contributor to their current debt, with 34 per cent saying it was the main factor. Home sales are up 6 per cent in the first half of 2015 from the same period a year ago, according to BMO Economics, with hot housing markets adding fuel to debt levels.
Last week, The Real Estate Board of Greater Vancouver reported sales of existing homes in the region soared 30 per cent in July compared with a year earlier, causing benchmark prices to rise more than 11 per cent. The Toronto Real Estate Board reported home sales rising 8 per cent to hit a new July record, with prices jumping 9.4 per cent for the year.
“Home sales remain resilient across most of the country, led by soaring transactions in Toronto and Vancouver,” said BMO Nesbitt Burns Inc. economist Sal Guiatieri. “Of growing concern, however, is that rapidly rising house prices in these two cities could encourage some households to take on larger mortgages than they can handle when interest rates rise.”
One-third of Canadians said a home renovation or repairs also contributed to their debt. Part of this was due to an aging population spending more to fix their homes, Mr. Guiatieri said.
Educational expenses like tuition, supplies and textbooks rose 3 per cent in the past year, with one-third of Canadians under 35 having debt from student loans.
“Given the angst about high debt burdens, it’s somewhat comforting to know that Canadians are generally accumulating good debt-to-finance investments in their homes and educations, as opposed to bad debt such as discretionary spending on vacations and entertainment,” Mr. Guiatieri said.
But there is still concern over debt accumulated from spending on items such as vacation (28 per cent), entertainment (22 per cent) and home electronics (20 per cent).
Auto sales also contributed to 46 per cent of Canadians’ debt levels, with car purchases at record highs, supported by inexpensive credit and extended loan terms.