Canada’s household imbalances intensifying

Stats Canada shines the light on a problem that has industry players divided as to what it means.

Canada’s household imbalances intensifying
The latest debt-to-disposable income ratio hit a record 163.3 percent in the fourth quarter, up 60 basis points from Q3 according to new numbers from Stats Canada.

While this number paints a bleak picture of the typical Canadian household, Royal Bank economist Laura Cooper isn’t nearly as concerned telling clients as much in a research note.

“It would be premature to cite the deterioration in the financial position of Canadian households, as evidenced by the above household debt metrics, as cause for concern that the risks posed by household imbalances are intensifying.”

“The debt-to-income measure is not our preferred metric for examining the financial position of Canadian households, most notably as it accounts for only one side of household balance sheets – the debt-to-net worth and debt-to asset ratios are likely better indicators.”

On that front the debt-to-net worth and debt-to-asset ratios in Q4 were 21.9 percent and 18.2 percent respectively, both near six-year lows.

When asked by WP to comment about the latest numbers, Manulife Securities advisor Monica Weissmann had lots to say but one particular viewpoint captured our attention.

“A very large number of people consider the real estate market the place to be if you want to ensure your retirement,” says Weissmann. “I’m definitely not selling this opinion.”

“People are using their disposable income to pay down their mortgages and that’s not the best use of their money in these times of low interest rates and they don’t realize that prices won’t continue to grow the same way they have the last 15 years… not even in Toronto.”

So, while the debt issue is a concern, it seems that our fascination with real estate could end badly.