Canadian Government Is Now Warning Household Debt Will Shatter Records

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[This was a direct result of government policy; no reason for surprise: "the financial vulnerability of the average Canadian household would rise to levels beyond historical experience." — Parliamentary Budget Officer. See also this CCPA report: Could skyrocketing private sector debt spell economic crisis? *RON*]


Daniel Wong, Better Dwelling, 21 June 2017

Another government organization is tattling on Canadian debt problems. The Parliamentary Budget Officer (PBO), the organization that provides independent financial analysis to the Canadian Parliament, released a report on household indebtedness. The report outlines how deep Canada’s household debt problem is, and is projecting it will get worse – fast.
Household Debt Increased

The PBO observed when household indebtedness increased. From 2002 to 2011, they note debt increased “sharply.” It then spun sideways until 2015, before slowly moving higher into 2017. To give some context, the ratio of household debt-to-disposable income jumped from 109% in 2002, to 162.34% by 2011. From there it “only” jumped to 169% by the first quarter of 2017. Most of the debt appears to have accumulated before and during the Great Recession. It quietly marched higher after that.

The PBO also believes it’s going to accelerate over the next year. They estimate this ratio will rise to 180% by the second quarter of 2018. If they’re right, debt would have to accelerate at the fastest pace in 27 years.
Canadian Household Debt-To-Income Ratio, with PBO ProjectionRatioProjection1990 Q11992 Q21994 Q31996 Q41999 Q12001 Q22003 Q32005 Q42008 Q12010 Q22012 Q32014 Q42017 Q12019 Q22021 Q3050100150200Percent
QuarterRatioProjection
1990 Q189
1990 Q294.2
1990 Q392.6
1990 Q492
1991 Q191.1
1991 Q294.4
1991 Q394.1
1991 Q493.5
1992 Q195
1992 Q294.7
1992 Q392.7
1992 Q495.9
1993 Q194.9
1993 Q293.3
1993 Q397.2
1993 Q498.5
1994 Q197.3
1994 Q297.7
1994 Q399.3
1994 Q499.8
1995 Q199.3
1995 Q299.3
1995 Q3101.3
1995 Q4101.5
1996 Q1101.6
1996 Q2102.8
1996 Q3103.7
1996 Q4103.8
1997 Q1104.7
1997 Q2105.8
1997 Q3105.8
1997 Q4106.4
1998 Q1108.3
1998 Q2109.1
1998 Q3109.1
1998 Q4108.5
1999 Q1109.7
1999 Q2110.2
1999 Q3110.7
1999 Q4111.2
2000 Q1111.6
2000 Q2111.8
2000 Q3111.6
2000 Q4111.1
2001 Q1108.3
2001 Q2112.5
2001 Q3111.8
2001 Q4112.6
2002 Q1112.5
2002 Q2115
2002 Q3115.6
2002 Q4116.7
2003 Q1115.9
2003 Q2119
2003 Q3122
2003 Q4123.2
2004 Q1123.1
2004 Q2124.3
2004 Q3126.2
2004 Q4128.8
2005 Q1132.2
2005 Q2133.1
2005 Q3136.1
2005 Q4136.9
2006 Q1135.3
2006 Q2139
2006 Q3139.3
2006 Q4140.4
2007 Q1140.1
2007 Q2145.7
2007 Q3149.6
2007 Q4150.8
2008 Q1151.1
2008 Q2153.2
2008 Q3154
2008 Q4156.3
2009 Q1157.7
2009 Q2160.9
2009 Q3161
2009 Q4161.9
2010 Q1159.3
2010 Q2165
2010 Q3164.8
2010 Q4164.2
2011 Q1164.1
2011 Q2166.9
2011 Q3167.9
2011 Q4166.9
2012 Q1166.2
2012 Q2168.1
2012 Q3168.4
2012 Q4168.7
2013 Q1165.5
2013 Q2167.1
2013 Q3168.5
2013 Q4168
2014 Q1168.5
2014 Q2169
2014 Q3169.6
2014 Q4169.8
2015 Q1169.6
2015 Q2169.7
2015 Q3170.9
2015 Q4170.7
2016 Q1171.4
2016 Q2173.9
2016 Q3173.3
2016 Q4173.3
2017 Q1173.7173.7
2017 Q2175.4
2017 Q3176.6
2017 Q4177.8
2018 Q1179
2018 Q2179.3
2018 Q3179.5
2018 Q4179.6
2019 Q1179.6
2019 Q2179.6
2019 Q3179.6
2019 Q4179.6
2020 Q1179.6
2020 Q2179.6
2020 Q3179.7
2020 Q4179.9
2021 Q1179.8
2021 Q2179.7
2021 Q3179.6
2021 Q4179.6
Source: Statistics Canada, PBO.
Debt Service Ratio To Hit All Time High

The household debt service ratio is also pretty high. As of the first quarter of 2017, Canadians have a debt service ratio of 14.2%. This basically means Canadians are devoting $14.20 to service debt for every $100 in disposable income they have. This is below the current record set in the fourth quarter of 2007, when it was at 14.9%. So Canadians have had it worse.
Canadian Debt Service Ratio, with PBO ProjectionDSRProjection1990 Q11992 Q21994 Q31996 Q41999 Q12001 Q22003 Q32005 Q42008 Q12010 Q22012 Q32014 Q42017 Q12019 Q22021 Q31012141618Percent
QuarterDSRProjection
1990 Q112.2
1990 Q212.7
1990 Q312.5
1990 Q412.3
1991 Q112.2
1991 Q212.1
1991 Q311.9
1991 Q411.8
1992 Q111.8
1992 Q211.5
1992 Q311.2
1992 Q411.5
1993 Q111.2
1993 Q210.6
1993 Q310.9
1993 Q411.1
1994 Q111.1
1994 Q211.1
1994 Q311.3
1994 Q411.4
1995 Q111.9
1995 Q211.8
1995 Q311.8
1995 Q411.8
1996 Q111.8
1996 Q211.9
1996 Q312
1996 Q411.8
1997 Q111.8
1997 Q211.8
1997 Q311.7
1997 Q411.9
1998 Q112.1
1998 Q212.3
1998 Q312.3
1998 Q412.2
1999 Q112.2
1999 Q212
1999 Q311.9
1999 Q412.1
2000 Q112.2
2000 Q212.3
2000 Q312.3
2000 Q412.3
2001 Q112
2001 Q212.2
2001 Q312
2001 Q411.7
2002 Q111.7
2002 Q211.8
2002 Q311.9
2002 Q411.9
2003 Q112
2003 Q212.3
2003 Q312.4
2003 Q412.4
2004 Q112.4
2004 Q212.3
2004 Q312.4
2004 Q412.6
2005 Q113.1
2005 Q213.1
2005 Q313.3
2005 Q413.5
2006 Q113.4
2006 Q213.9
2006 Q313.9
2006 Q414
2007 Q114.1
2007 Q214.5
2007 Q314.8
2007 Q414.9
2008 Q114.8
2008 Q214.6
2008 Q314.4
2008 Q414.3
2009 Q114.1
2009 Q214
2009 Q313.8
2009 Q413.7
2010 Q113.7
2010 Q214.1
2010 Q314
2010 Q413.9
2011 Q113.9
2011 Q214
2011 Q314
2011 Q413.9
2012 Q113.8
2012 Q213.9
2012 Q313.8
2012 Q413.9
2013 Q113.9
2013 Q213.9
2013 Q314
2013 Q413.9
2014 Q114.1
2014 Q214.1
2014 Q314.1
2014 Q414.1
2015 Q114.1
2015 Q214
2015 Q314
2015 Q413.9
2016 Q114.1
2016 Q214.3
2016 Q314.2
2016 Q414.1
2017 Q114.214.2
2017 Q214.3
2017 Q314.4
2017 Q414.6
2018 Q114.7
2018 Q214.9
2018 Q315
2018 Q415.2
2019 Q115.3
2019 Q215.4
2019 Q315.6
2019 Q415.7
2020 Q115.8
2020 Q216
2020 Q316.1
2020 Q416.2
2021 Q116.2
2021 Q216.3
2021 Q316.3
2021 Q416.3
Source: Statistics Canada, PBO.
The accelerating debt the PBO is planning for, is expected to push the ratio to a level Canada has yet to see. In their words, “the financial vulnerability of the average Canadian household would rise to levels beyond historical experience.” They project the second quarter of 2018 will see Canadians match the 14.9% high set 10 years ago. As interest rates return to a “normal” of 3.0% by mid-2020, those with existing debt will see an increase in the cost of servicing it. By 2021, they’re projecting that the average debt service ratio will hit 16.3% – a level that’s never been tested before.

The total amount of debt Canadians have isn’t nearly as important as their ability to service it. The higher the ratio of income devoted to servicing debt, the less they can afford to spend, save, and invest. If this debt was used to buy assets that can be sold, that’s great if the asset appreciates. If the asset depreciates, they’re throwing almost a fifth of their paycheck away.

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