average Canadian debt Archives - Ira SmithTrustee & Receiver Inc.

Will Canadian housing bubble burst? Introduction

I have read recently several articles on will Canadian housing bubble burst? I was curious about all the so-called experts calling for a real estate market crash in Toronto. What piqued my curiosity was I vaguely remembered having written a couple of blogs on the subject a while ago in response to such articles. So, I thought it would be interesting to go back and see how far back “experts” were predicting a Canadian real estate bubble. Especially a Vancouver and Toronto housing bubble.

Will Canadian housing bubble burst? “Experts” predicting Canada’s real estate market crash since 2013

The first time these articles caught my attention was in mid-2013. Many articles written were just like the one that appeared in the Toronto Star on Sunday, July 14, 2013 titled Canadian housing bubble looks ripe for popping.

I first wrote the blog FINANCIAL CRISIS IN CANADA: CAN REAL ESTATE PRICES TRIGGER ONE? posted on May 13, 2014. In that blog, I pointed out some issues that led to the US housing crisis in 2007 and what issues we should look at in Canada as indicators to avoid the same fate for the Canadian real estate market. Back then:

7.5% of the Canadian workforce is in the construction industry, while 7% of the Canadian economy depends on residential construction – both record highs;
the unemployment rate rose from 6.9% to 7.2%;
the Canadian debt-to-income ratio has soared to a record 164% which is above levels experienced in the U.S. before the financial crisis; and
70% of all household debt in Canada is made up of residential mortgage debt.

It is interesting to note that at the end of 2016:

the percentage of the Canadian workforce in the construction industry, and the percentage of the Canadian economy based on residential construction – both record highs then – is roughly the same at the end of 2016;
the unemployment rate was 7.2% and today is roughly 6.6%;
the Canadian debt-to-income ratio of 164% at the end of 2016 rose further to 167%; and
71% of all household debt in Canada is made up of residential mortgage debt.

So not a lot has changed in the Canadian economy in the last three years.

Will Canadian housing bubble burst? Canadian real estate bubble 2014

Will the Canadian real estate bubble burst continued to be the subject of several articles in the newspapers quoting Canadian and American economists. Author and portfolio manager Hilliard MacBeth was calling for a major real estate correction in 2014. CBC News reported in Housing market a bubble set to burst, Hilliard MacBeth says. The Globe and Mail reported in a video Canada’s housing bubble about to burst, author says.

Such articles motivated me to immediately follow-up with the blog CANADIAN REAL ESTATE BUBBLE BURST: WHEN? posted on June 12, 2014. You can read that blog again. In it, I provided somewhat of a contrarian view with evidence about why other experts were taking the view that there was not a Canadian real estate market crash looming. I wrote that we should rightly be worried about the average Canadian debt level.

Will Canadian housing bubble burst? What starts a housing bubble?

I believe the causes of a housing bubble are a rapid increase in housing prices fueled by demand, speculation and irrational exuberance. That is certainly what happened in Toronto in the late 1980’s and can also be said about the more recent US housing crash (in addition to mortgage fraud covered up with the bundled subprime mortgages financial product).

This time around, it seems that in Canada, and specifically Toronto, the increase in housing prices is fueled by demand. Unlike the late 1980’s, I don’t hear about people who cannot afford to purchase a home purchasing many homes to never take possession but merely to flip the contracts for a profit. Today we just have the simple economics of supply and demand. The reality is that the GTA represents over 70% of the Ontario population and the GTA expects to grow by over 100,000 people annually through to and including 2019.

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Will Canadian housing bubble burst? Toronto is a magnet

The reality is that Toronto, on a net basis, has an increasing population every year because Toronto is a magnet for the world of people looking for better opportunities. These people must live somewhere and the normal life cycle calls for renting first and then buying real estate when you are more established and can afford to.

Is it any wonder? For a second year in a row, Canada ranked second in the annual “Best Countries” survey from the U.S. News & World Report, with Young & Rubicam BAV Consulting and the Wharton School of the University of Pennsylvania.

So, the economy has not shrunk, mortgage rates have remained low and demand is outstripping supply. Once could argue that it is only for the first time in 2017, that affordable housing options are drying up as the average Toronto home selling price is now roughly $875,983, per the Toronto Real Estate Board.

Will Canadian housing bubble burst? The Chicken Little prize

Then of course there is Garth Turner; Canadian author, speaker and lecturer on macroeconomics, the housing market and investment techniques, member of the Canadian Parliament for nine years and broadcaster. Who in 2008 published his book Greater Fool: The Troubled Future of Real Estate. Mr. Turner has predicted a Canada housing crash coming for many years.

I think like everything in life, moderation is the key. Prepare an honest family budget, only take on the debt you can truly afford, look at home buying and the related mortgage debt and other expenses carefully. Once you have purchased your home, don’t spend more than you earn and stick to your budget.

If you did this over the last 5 years in Toronto, you were living in a home you love and have watched it grow in value increasing your net worth, if you have not mortgaged up along the way. I am glad that I did not listen to Mr. Turner.

Will Canadian housing bubble burst? Nothing lasts forever

If you have stuck to your family budget and not overspent, even if house prices fall, it means nothing to you. However, if you have overstretched, taken on more debt than you can afford, spend more than you earn so that you have other non-mortgage debt, this will eventually catch up with you.

Perhaps an increase in mortgage rates when it is time to renew your mortgage will be the tipping point, or as interest rates increase and consumption decreases, negatively affecting the Canadian economy, companies will decrease their number of employees. If your household requires both spouses working full-time to afford all your debt, and one loses his or her job, perhaps that will be your tipping point.

Will Canadian housing bubble burst? What to do if you have too much debt

Have you gotten in over your head in the housing market to the point where you could not come up with $2000 in an emergency? Ira Smith Trustee & Receiver Inc. can help with your serious debt issues. Contact us today for a consultation. We approach every file with the attitude that corporate or personal financial problems can be solved given immediate action and the right plan. Starting Over, Starting Now you can take the first step towards living a debt free life.

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Average Canadian Debt: Introduction

The average Canadian debt will never be repaid if you only make the minimum monthly payments. Making simply the minimal payment on your charge cards and car loans is leading a lot more borrowers right into trouble, says a brand-new study.

Average Canadian Debt: February 2017 released TransUnion study

Chicago-based TransUnion checked 1,010 customers in Canada. They discovered 88 percent of bank card owners in Canada commonly make a higher payment compared to their minimum due on their rotating financial debts every month. Regardless, 39 percent of those charge card owners doubt of the advantages of repaying greater than the minimal payment noted on their credit card statement!

“Making more than the minimum payment makes them a more attractive customer to their financial institution,” stated Todd Skinner, president of TransUnion Canada.

bankruptcy policy TPR average Canadian mortgage debt

Average Canadian Debt: The new Total Payment Ratio (TPR) statistic

TransUnion is currently utilizing exactly what it calls a trended information report over 24 months, as opposed to a month-to-month picture. They find this offers a clearer representation of the state of a person’s financial resources. It remedies a stat that could be manipulated if, for instance, your credit report was pulled in January after your financial debts increased through the holiday period.

The credit rating company has actually likewise developed exactly what it calls a TPR statistic. It decides the connection between the repayment measure as well as the defaults throughout the many debts. The TPR calculation separates a customer’s complete month-to-month credit repayments by the complete minimum due on every one of the customer’s credit items. The greater the TPR the much less likely a customer falls back on repayments.

Average Canadian Debt: How to calculate a TPR

A person making $400 in repayments on 3 cards when the accumulated minimum due was $200 would have a TPR of 2.0. A person with $1,200 in repayments with an accumulated minimum due of $200 would have a TPR of 6.0.

In its research, TransUnion discovered among Canadians with a TPR of less than 5 on their charge card there was a 1.77 high threat of vehicle finance default. This is specified as not paying back for 90 days or even more. When the TPR rose to greater than 15.0, the high threat of default went down to 1.4 percent.

Average Canadian Debt: What a TPR score tells us about you

“This may sound intuitive — consumers who are able to pay more usually have more liquidity and are less likely to miss payments. But it is assigning a number to this intuition that is important,” stated Ezra Becker, vice-president as well as head of TransUnion’s worldwide research. The research study validated that as TPR boosted, delinquencies decreased for charge card and vehicle funding.

Average Canadian Debt: You will never get out of debt only making the minimum monthly payment

Making the minimal repayment on a credit card leaves you little possibility of in fact ever getting out of financial debt. I understand that many times, people have actually been making minimal repayments on credit cards, by obtaining money from one card to pay a different one.

Credit card statements in Canada currently consist of a line that shows for how long it will take to repay your bank card expense in months. It assumes that you are making just the minimal repayment each month as well as not increasing the amount owing. There are no regulations as to exactly how they place it on the statement. It’s typically in the small print that many people overlook.

Average Canadian Debt: What should you do if you have too much debt

Get in touch with a licensed insolvency trustee. We’re government licensed and supervised. Our costs are government controlled and we’re subject to a stringent code of principles. We must also take necessary professional development courses yearly.

A qualified licensed insolvency trustee (bankruptcy trustee) MUST initially check every one of your alternatives with you in order for you to prevent bankruptcy. The trustee must as well find the very best bankruptcy choice option for you. Lots of times the trustee could effectively carry out a financial debt restructuring for you as an option to avoid bankruptcy.

Get in touch with Ira Smith Trustee & Receiver Inc. Allow us aid your recovery to financial health and wellness. Let us give you back tranquility of mind, body and soul, Starting Over, Starting Now. Call us today.

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