A drop in consumer spending will lead to increased unemployment which will lead to an additional drop in consumer spending which will lead to...
The ratio of mortgage debt to disposable income has increased to almost 100 percent from about 50 percent over the last 30 years, the central bank report said. That gain has come with increased home ownership rates, house prices that have risen faster than incomes and low mortgage rates, the bank said in the Review. Home prices adjusted for inflation have increased 88 percent since 1980.88% adjusted for inflation? 1980 was a slightly below average year for prices, but not exactly bottom of the barrel low.
“The Canadian housing market has not exhibited the excesses seen in other countries,” the bank said. Last month it forecast that the ratio of household debt will continue to set records after reaching 153 percent in the third quarter.Wait, what? Someone needs to define "excesses" and while they are at it "bubble". Maybe what we have here is a semantic problem.
House-Backed DebtHalf of new consumer credit is HELOC or cash out refi of some sort. Lovely. So, equity is vanishing. That part about the long term benefits of lower rents via ownership is apparently not one anyone really cares to reach in Canada. Renting directly is a heck of a lot cheaper and less risky than renting money and holding title. Eh, they'll learn.
Families are taking on more debt that is backed by their houses, with such loans accounting for about half of consumer credit in 2011, up from 11 percent in 1995, the bank said today. Increased marketing of such loans, their relatively low interest rates and rising home prices have contributed to the increase, the report said.