Canadian Mortgage Debt

by Chris Fournier and Erik Hertzberg

From: Mortgage Broker News

Canada sets interest rates Wednesday, and there’s widespread concern about what any further borrowing-cost increases might mean for consumers, their immense pile of debt and the housing market.

It’s one of the reasons to be bearish on Canada. Steve Eisman, who was featured in Michael Lewis’s book “The Big Short,” told Bloomberg TV this month investors should short Canadian financials, citing looming housing “issues.”

The country’s largest lenders are warning against overplaying the concerns. While unprecedented debt levels pose risks, they say there won’t be any major upset to the economy for a number of reasons, including the view Bank of Canada Governor Stephen Poloz won’t press ahead with higher rates if signs of stress begin to emerge.

While the debt levels are a problem, “we don’t expect it to derail the economy, just because we expect Poloz to go quite gradually, or more gradually than what might have warranted hikes in the past,” Brittany Baumann, macro strategist at Toronto-Dominion Bank said in a telephone interview.

Other reasons not to panic -- according to economists at the other five major commercial banks -- include households’ ability to keep monthly payments on mortgages in check, a manageable number of home-loan renewals, and the still-low cost of borrowing.

That Canadians are heavily indebted is without question. Household debt -- mortgages and consumer debt such as credit cards -- has swollen to C$2.1 trillion ($1.6 trillion), and levels as a share of income are easily the highest in the Group of Seven. Two-thirds of that is mortgages. With the central bank raising rates three times since July and with more hikes to come, there’s concern things could get messy.


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