Canadian household debt now worth more than the entire country’s economy

Despite the warnings, Canadians keep racking up debt while what we collectively owe has surpassed a staggering milestone.

New analysis released Tuesday by one of the top economists at the Canada Mortgage and Housing Corporation (CMHC) points to mortgage debt as the biggest factor as housing prices and interest rates have gone up.

CMHC Deputy Chief Economist Aled ab Iorewerth says the country’s household debt is now at the highest level of any country in the G7, and what we collectively owe is now worth more than Canada’s entire economy — 107 per cent of GDP.

Mortgages currently make up about three-quarters of household debt in Canada. While household debt made up 80 per cent of the size of the overall Canadian economy during the 2008 recession, it rose to 95 per cent in 2010 and exceeded its size in 2021, he noted.

“By contrast, household debt in the U.S. fell from 100 per cent of GDP in 2008 to about 75 per cent in 2021,” said ab Iorewerth.

“While U.S. households reduced debt, Canadians increased theirs and this will likely continue to increase unless we address affordability in the housing market.”


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Over the same period of time, household debt dropped in the U.K. and Germany and was nearly unchanged in Italy.

ab Iorewerth believes such a high level of household debt leaves Canada’s economy vulnerable to any global crisis.

“When many households in an economy are heavily indebted, the situation can quickly deteriorate, such as what was witnessed in the US in 2007 and 2008,” he writes.

“Canada is safeguarded by a sound institutional framework and prudent financial regulation. This ensures that most Canadian borrowers would be able to withstand currently elevated mortgage rates. But, in the event of a severe global economic downturn, Canada’s high household debt will be a vulnerability.”

He notes high levels of debt do the most damage when a significantly negative economic event happens and it leads to widespread job losses because it becomes difficult, if not impossible, for many mortgage holders to service their debt.

Widespread job losses in an economy where debt levels are high will make any recession more severe.

ab Iorewerth says there are “early warning signs” that more consumers are getting into financial trouble.

Another report from RBC Economics says a looming recession and the risk of a higher unemployment rate are putting more Canadians in a precarious position, predicting a 30 per cent jump in loan delinquencies and insolvencies heading into next year.

With files from Richard Dettman and The Canadian Press

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