Canadian Housing

OTTAWA — Canadians owed more than a trillion dollars on their mortgages as of March of 2011, according to a report released Thursday by the Canadian Mortgage and Housing Corp., which says the record level of household debt in this country is a "serious issue."

The CMHC reported that housing-related spending of about $330 billion a year in 2010 has risen by 67 per cent since 2001 and now comprises 20.3 per cent of Canada's gross domestic product in 2010 — which underlines the importance of that debt load, and what might happen to the economy if for any reason Canadians crack under its burden.

CMHC figures show that mortgages made up about 68 per cent of total household debt in 2010 — up from 63 per cent in 1971 but down from the peak of 75 per cent in 1993. Consumer credit, which makes up the other 32 per cent, has been growing faster than mortgage debt over the past two decades, it says.

"Concerns expressed about household indebtedness have been largely driven by the total household debt-to-disposable income ratio," the report says, noting that the ratio hit a record high of 1.506 in the second quarter of 2011.

"The major risk in the mortgage market is impairment in a household's ability to pay, often due to job loss. Recession or other adverse economic scenarios, such as rising interest rates, could certainly pose a challenge for some Canadian households."

Canadians' debt levels have been growing fairly steadily since the 1960s, the report notes, but adds that a number of more recent factors have allowed debt to grow to its current record level, including low interest rates, rising household incomes and financial product innovations, which have allowed Canadians to make lower payments on higher debt loads.

While about 6.5 per cent of Canadian households are financially vulnerable according to Bank of Canada guidelines, the CMHC says continued employment growth, increasing net worth of households and a growing population are all positive factors for housing demand.

Meanwhile, low interest rates, and a relatively small inventory of homes for sale, helped push existing home prices 5.8 per cent higher in 2010, to an average $339,042, and the new housing price index rose 2.2 per cent last year.

Postmedia News


Read more: http://www.calgaryherald.com/business/Housing+mania+leaves+Canadians+over+indebted+economy+vulnerable+pullback/5923763/story.html#ixzz1hxM4TUXG