TD warns of Canadian ‘debt trap’
Who’s afraid of debt? Toronto Dominion Bank apparently:
The warning from TD emerged as the Bank of Canada’s latest quarterly update indicated growth in consumer spending growth would slow as household balance sheets are “increasingly” stretched. Mark Carney, the bank governor, reiterated he was “concerned” about household debt, which on a debt-to-income ratio stands at a record 146%.
TD warned that ratio is, in their estimation, headed higher — to over 150% — as interest rates remain abnormally low, with the Bank of Canada policy rate not expected to reach 3.5% until 2013.
The present level of household debt is “excessive,” the report said. Economic fundamentals justify a debt-to-income ratio close to 140%.
Phew! Economic fundamentals justify a debt to income ratio around 140%! That’s good news, only 6 percent less than the current record levels! How hard could that be reach?
Mr. Alexander said debt growth has averaged roughly 8% to 10% a year in the past decade. Meanwhile, disposable income is expected to climb at a modest annual 4% pace, according to TD calculations. This means average debt growth would have to slow significantly to 2% a year — which would be “unprecedented” in a non-recessionary period — for the debt-to-income ratio to reach a more reasonable range of between 138% to 140%.
Oh, I see. Well where is all that debt growth coming from?
..a large part of the debt increase has been due to rising home ownership rates and rising house prices. Homeownership rates are nearing 70%, up from about 66% in 2001.
Hmm.. You mean like in the USA?
“We are not facing a U.S.-style problem,” the chief economist added, “but personal finances have gotten stretched at this point. The big risk is actually if debt picks up from here.”
Even if debt growth slowed from the average 8% to 10% range to a 5% annual pace, this would result in the debt-to-income ratio climbing to 151% by 2013, or roughly 11 to 13 percentage points above a “sustainable” level.
So is anyone doing anything about this problem?
Mr. Carney has repeatedly warned about the perils of households taking on too much debt, saying such behaviour could put Canadians in peril once interest rates begin to climb to so-called more normal levels. The TD report indicated as many as 10% to 11% of Canadian households might become “financially vulnerable” should the benchmark rate climb to 3.5%.
Well as long as they’re being warned everything should work out fine.
October 21st, 2010 at 3:14 pm
@jesse: It's hard to wean the debt crackheads when each hit costs a nickel apiece…
October 21st, 2010 at 3:06 pm
Bulls: you know its great that prices are holding and all
but seriously given the amount of economic activity tied
to real estate, we might as well be headed into another
great recession.
Ya, sellers pull their homes off the market, but if your
holding costs are bleeding you in the 1000s per month,
its only a matter of time before you slash and burn.
October 21st, 2010 at 3:00 pm
October Projections for month totals
Days elapsed so far 14
Days remaining 6
Average Sales this month 120
Average Listings this month 202
Projected sell/list 59.7%
SALES
Projected month end total 2409 +/- 86
95% Conf Interval lower bound 2322
95% Conf Interval upper bound 2495
NEW LISTINGS
Projected month end total 4033 +/- 118
95% Conf Interval lower bound 3915
95% Conf Interval upper bound 4151
MONTHS OF INVENTORY
Inventory as of September 30th 15401
MoI at this sales pace 6.39
Note: This is a simple linear projection of month end totals.
This provides the answer to the question
"What will month end totals be, if things continue
on the same pace we've seen so far this month?"
October 21st, 2010 at 2:58 pm
Dailies – List | Sold
Vancouver East & West*
New Listings – 54
Back On Market Listings – 0
Price Changes – 18
Sold Listings – 44
Vancouver All Areas*
New Listings – 172
Back On Market Listings – 2
Price Changes – 87
Sold Listings – 130
*Attached & Detached – Date: 10/21/2010 Time:22:34 Pacific YatterMatters.com:Courtesy REBGV. Data believed to be accurate but is not guaranteed.
October 21st, 2010 at 2:52 pm
Yes we agree, get rid of the trolls !
October 21st, 2010 at 1:53 pm
Thanks for the illuminating conversations today everyone, minus the obvious trolls.
October 21st, 2010 at 12:22 pm
Waiting for the bubble to pop is like waiting for the fireworks to start.
C'mon, let's get this show on the road already!!!
October 21st, 2010 at 11:06 am
Carol James
Quit voting us down you dumb beatch
October 21st, 2010 at 10:26 am
We are in Hawaii with Mr Campbell
He has had to many virgin Caesars is on a bender.
He thinks his approval rating is 90 % (not 9%)
He feels that he must sacrifice a virgin to assure himself of a 4 th term by dropping her into a volcano. He insists on one from Surrey.
Can anyone please help and Fed-Ex one to us ?
Thanks
October 21st, 2010 at 8:33 am
@WFT?: "the easiest way to do it is to tighten mortgage rules and keep low rates"
Mortgage rule changes will only have effect on the margins. The danger is people with mostly paid-off houses — often people nearing retirement — taking out HELOCs that won't be subject to the tighter requirements.
Increasing MBS spreads by backing off government guarantees is an option. At some point higher rates need to come into play or it's bad news in the long term, given how prone Canadians have shown to be to taking on debt in general.
October 21st, 2010 at 8:29 am
On the topic of TD, I just read this on Gail Vazoxlade site about how TD is changing all their new mortgage from a conventional mortgage into collateral mortgage. Holy crap is this a sneaky way to rope people in and hold them hostage for life! I bet the account managers will not be explaining all the gotchas/issues with this new mortgage type to clients (assuming they even tell clients that they aren't getting a conventional mortgage).
http://gailvazoxlade.com/blog/archives/2230
All I can say is holy crap this is evil! Though you do have to give TD credit for the way they sneak in this kind evil changes in, and that people just takes it after some token protests.
October 21st, 2010 at 7:16 am
Or better yet, this one.
http://www.youtube.com/watch?v=VL3KuaFvOSc
October 21st, 2010 at 7:12 am
Hi I'm Mark Carney, Governor of the Bank of Canada, and I'd like to take this opportunity to invite you to view a brief instructional video that I'm sure will help you with your financial planning.
http://www.youtube.com/watch?v=Zj8TWETFFXQ