CANADA: 2008 all over again?

Secular Investor's picture

A major issue arising in Canada hasn’t received too much attention lately. Year after year, quarter after quarter, the level of the household debt is increasing both in absolute and relative numbers:


The net debt versus disposable income tells you the total amount of debt in a household versus that household income and is a bit comparable to a net debt/EBITDA ratio on a company basis. A ratio of 170% means a Canadian household would have to spend 21 months of its (entire!) disposable income on debt repayment before being debt free. If a repayment capability is for instance just 20% of the disposable income, you’re talking about a repayment period of 10 years – excluding the additional interest expenses.

Did you want to see another perspective? The next chart shows the net debt versus Canada’s GDP. As you can see, this ratio has increased sharply, indicating Canadians are outspending.


And finally, a third chart which should worry you; the total amount of car loans.


One of the ‘arguments’ from those who consider the elevated debt levels ‘not too bad’ is the argument the asset value of the households is increasing as well, predominantly due to increasing real estate prices. Technically, one is correct when assuming the increasing asset prices keep the debt/equity ratio in balance despite an increasing debt level.

However, the real estate market is actually a major part of the problem in Canada, and that’s also something the Bank of Canada has pointed out in a recent update. The total indebtedness of the Canadian households actually increased exactly due to the increasing real estate prices, increasing the need for its citizens to apply for larger mortgages.

Canadians seem to think the only way the real estate prices are going, is up. Does this sound familiar to you? Because it definitely sounds familiar to us, as inflated real estate prices and ‘over-borrowing’ homeowners were the main culprits of the global financial crisis in the USA in 2008.

Back then, the Canadian banks were seen as some of the safest banks in the world, but the stability of the main banks is now being threatened by losses related to loans to oil companies and a negative shock in the real estate market might have very negative consequences. Even if we wouldn’t expect the housing prices to drop but to level off, the expected increases in the benchmark interest rates will make a mortgage much more expensive.


Whereas the average cost of a mortgage is currently approximately 3%, this could easily increase towards the 5% level by the end of the current decade. If you’re a Vancouver- or Toronto-based homeowner who borrowed $1M, your interest expenses will increase by $20,000 per year or $1,500 per month. That’s a pure cost increase and doesn’t reduce the principal payments on your loan.

According to the Bank of Canada, the total amount of mortgage debt increased by 6% in the past year to C$1.45T. A 2% increase in the average cost of debt would increase the total annual payment by C$30B. To put this in perspective (as the C$30B will have to be funded by slashing other expenses), that’s approximately 2% of the country’s GDP so you can be pretty certain the trickle down effect will be substantial.

Source: Bank of Canada

And the higher mortgage rates will have another negative consequence. Exactly because the cost of debt is increasing, fewer people will be able to afford a mortgage, and banks will tighten their conditions. This by itself will cause the real estate prices to stall, and very likely to decrease. After all, unless the foreign buyers are filling the gap, there will be fewer buyers in the market for the available properties. The central bank is absolutely right when it says the ‘household vulnerabilities have moved higher’.

A low oil price, low (hard) commodity prices, an ‘over-borrowing’ population and an overvalued real estate market. Oh, what could possibly go wrong?

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Glyndwr will return's picture

Bankers print money out of thin air and lend it to you. It's all they know and all they can do. Take away that punch bowl and they have nothing ahead of them except life sentences. Same for the central bankers who also know this. Crucially , people need to know money comes from nothing . It's pretty much all they need to know to cause revolution . Spread the message. Every. Single. Day.

Silver Savior's picture

No one has learned a damed thing since 2008 and everyone is in denial of an even bigger event. Well besides a few people and myself. The rest of the population is clueless.

ali-ali-al-qomfri's picture

it's Canaanda,

Canada was a dream log ago.

All Risk No Reward's picture

No, it's just another territory in UzBanksterstan.

How To Be a Crook

Poverty - Debt Is Not a Choice

Renaissance 2.0 The Rise of [Debt-Money Monopolist] Financial Empire

Debunking Money

Krugman (and each MIT economist professor - THEY KNOW AND THEY OCCULT!) is a Goebbelsian propagandist as he covers the crimes of wolves with his fake sheep suit and lisp.

Krugman to Lietaer: "Never touch the money system!"

And don't think Steve Keen is any better. He was called to the carpet for not admitting the system is a fraud when it was explained EXACTLY HOW THAT FRAUD WORKED... and he tucked tail and ran away PRETENDING he was responsive...

The Principal And Interest On Debt Myth (technically correct, but practically reveals inherent fraud as exposed CLEARLY in the comments section)

Bottom line - Steve Keen won't "touch the money system" either. He learned well from his Debt-Money Monopolist Overlords.

30 sheckels of silver over THE TRUTH.

"The best way to control the opposition is to lead it and/or finance it."
~Yours truly, based upon Vladimir Lenin's quote

yarpos's picture

Delete Canada, insert Australia, pretty much same same

Déjà view's picture

Or U.S. and U.K. 4/5-Eyes rank 196-199...LAST! NZ not far removed from pack. Life is good living well beyond means until it is not...


TheSilentMajority's picture

Chinadastan needs QE eh!

opport.knocks's picture

Canadians are just wise to the game. They know that the global debt ponzi scheme is unsustainable and that the US will start a major war to defend the petrodollar, ultimately ending in default. Then begins the "Great Reset" aka the 2024 debt jubilee. No matter if the war ends with a nuclear winter or not, all debts are expunged. So "party on Garth".

lake's picture

Do you, really, think banksters will let everyone get away with NOT paying them what's owed?  Banksters are all about money. There will be NO debt jubilee. If anything, the reset will make it all worse.

The only way the debt jubilee will happen is if banksters are dead and that is very unlikely.

Endgame Napoleon's picture

Banksters will demand their money, but will not reward those of modest means who actually pay back their business or personal loans. They will only reward those with lots of assets, high salaries or collateral with borrowing power after The Reset, just like before the fall. The Goverment will make sure that those who spent like drunken sailors, but who had sex and reproduced for the motherland, are absolved from their spending sprees, even if they said all the spending was for baby, when a large portion of it was actually spent on things like tattoos and beach trips with boyfriends. Politicians will sell this rancid unfairness as "helping working families."

All Risk No Reward's picture

“When a government is dependent upon bankers for money, they and not the leaders of the government control the situation, since the hand that gives is above the hand that takes. Money has no motherland; financiers are without patriotism and without decency; their sole object is gain.”
? Napoléon Bonaparte

EN, that's only during the set-up phase.

The take-down phase will be exceptionally brutal to all the debtors as they are asset stripped on a level that will make the Great Depression look loving.

Debt-money systems are always and everywhere frauds.

How To Be a Crook

Poverty - Debt Is Not a Choice

Renaissance 2.0 The Rise of [Debt-Money Monopolist] Financial Empire

Debunking Money

Krugman (and each MIT economist professor - THEY KNOW AND THEY OCCULT!) is a Goebbelsian propagandist as he covers the crimes of wolves with his fake sheep suit and lisp.

Krugman to Lietaer: "Never touch the money system!"

And don't think Steve Keen is any better. He was called to the carpet for not admitting the system is a fraud when it was explained EXACTLY HOW THAT FRAUD WORKED... and he tucked tail and ran away PRETENDING he was responsive...

The Principal And Interest On Debt Myth (technically correct, but practically reveals inherent fraud as exposed CLEARLY in the comments section)

Bottom line - Steve Keen won't "touch the money system" either. He learned well from his Debt-Money Monopolist Overlords.

30 sheckels of silver over THE TRUTH.

"The best way to control the opposition is to lead it and/or finance it."
~Yours truly, based upon Vladimir Lenin's quote

Kayman's picture

The banksters took the Fed conjured money/credit (out of thin air) and leveraged it via Fractional Reserve banking into a hundred times the first fake dollar, and now they want you to pay it back.  What a scam.

Fake money chasing up asset prices. And then the music stops.

All Risk No Reward's picture

No, NOT Zimbabwe.

The debts associated with that money are REAL.

There is always, BY DEFINITION, more debt than money on Main Street (since the Mega-Corporate system hoovers all the money up via interest and their lock on trade).

Debt-free money risks Zimbabwe... it is printed faster and faster and it eventually becomes worthless - kind of like a pizza that keeps getting divided into smaller and smaller pieces until a piece is a small sliver.

Debt-based money is far different. It is like a whole pizza that is lent out multiple times so that 30 people think they each own the whole pizza. And 20 of them have houses as collateral to the pizza shop that made the pizza (when they can't pay, they lose their house to the pizza shop corporate fronts so the owners of the pizza shop can basically control their properties).

The Debt-Money Monopolist Mega-Corporate Fascists will asset strip societies across the globe before they break the bond between debt and money - that's the whole reason for defining money as debt.

It is a weapon.

zagzigga's picture

Sorry to break it you crash predictors but the crash has already happened and has been going on for years. Market divergence from economic reality has crashed the economy of the uninvested working class and continues to do so. Central Banksters CAN NOT let a stock market crash happen again so they keep on printing, making currency worth even less. Right now living cost inflation is like a boa constrictor tightly wrapped around a human. The human aka the worker hasn't much wiggle room and no realistic hope of ever breaking free. This is the new normal. 

All Risk No Reward's picture

True, but there are different levels of crash... and the next significant crash level will eventually lead into the Greatest Depression as the greatest debt-bubble pops and wipes out debtors creates an incredible asset flow to the TBTF&Jail Mega-Corporate Banking Fronts of the Debt-Money Monopolists.

Kayman's picture

Daily dose of stock market quotes, just like the weather. Flim-flam.  As if the Stock Market has anything to do with earning a living in the real world.

Good Luck Canucks. Smug, self-elevated, self-deceiving.  

King of Ruperts Land's picture

Canada's opening remarks on re-negotiation of NAFTA: ... But Syrian refugees! And don't you know its 2015 now! The rainbow and the unicorns and yeh... So poo poo you Trump lover racist Misogynist white supremacist person of colour haters! We are culturally supremo to you you USA persons. Go back where you came from you xenophobes. We butt fuck here, and we like it, and and its legal if your 15 years old. And if you don't like our husbands with husbands, well then you are illegal you human gay rights violator. Therefore our cultural sovereignty is not on the table. Most importantly we will throw in an once of BC bud with every 1000 board feed of softwood lumber. Any questions?

Kayman's picture

B.C. bud- owned by the Hell's Angels since the seeds were brought over from Europe.  It's not BC Bud- it's Amsterdam Bud.  Different from the Mexican variety.

Kat Daddy's picture

Aren't these home mortgages FIXED RATES? 

opport.knocks's picture

Even Canadian fixed rate mortgages are seldom set for more than 5 years. Then you renew at the going rate. 

All Risk No Reward's picture

That's not a fixed rate (over the entire term of the loan, the usual definition).

Woe to the financially illiterate Canadian, woe to the financial illiterate anyone at this point.

Debt-Money Hell do cometh...

The Real Tony's picture

I hope Stephen Poloz has finally figured out lowering interest rates just puts people further into debt. Zero interest rates didn't work for Japan nor did they work for Europe but Poloz might have finally figured out it also didn't work for Canada and is finally considering raising rates so people take on less debt not more debt.

Setarcos's picture

In reality there never were zero interest rates, except the fake ones between central banks and their sundry components of what is really the "One Bank" consolidated in the BIS and then down the pyramid/Ponzi scam via the World Bank, IMF and so on.  Meanwhile the money from "thin air" got lent to the masses at compound interest.

Mortgage rates may be relatively low, but not historically and even "only" 3% is a vile scam in the inflated housing market.  The last time I looked, car and personal loans were at least 5-7% and then there's "credit"/debt cards at over 20% I think.  Whatever the exact figures, zero interest rates are a myth.

Vinividivinci's picture

Everything here in shithole Montrel, has already gone wrong...
just waiting for it to hit home to the sleep walkers.
We be the po'est major canadian city. I can testify to that !
Talk about boiling frogs ;)

Anon2017's picture

The 1976(?) French language law in Quebec set the province back for decades. Montreal's loss was Toronto's gain. 

The Real Tony's picture

Trudeau the second didn't have all the money Trudeau the first had to throw at the French and Montreal and Quebec. Canada was "in the black" the day Pierre Trudeau was elected.

Bopper09's picture

We were basically in 'the black' because the publicly owned Bank of Canada could issue near interest free loans to our governments.  Pierre, fresh out of commie school in Moscow, couldn't have any of that, so decided we'd be borrowing from private interests, and look at the federal debtload since '74.  Disgrace. 

But, if Rocco Gallati wins his case,, it the BOC could be reinstated for MacKenzie's original intent.

el buitre's picture

Commie school is in Basle Switzerland - the BIS, asshole, not Moscow.   You still reading 1970 newspapers?

new guy's picture

July 24th 2017 will mark the 100th aniversary the Canadian Income Tax Act being introduced on the floor of parliament.

The result of 100 years of ever increasing taxes is that human labour is now the most expensive commodity on the market.

But we don't have to worry about that because Trudeau is going to create thousands of really great government jobs by instituting a national Carbon Tax.

P.S. Illinois ain't got nothin on Ontario. Taxpayers here are supporting the most indebted sub national government in the world. Go Canada.

Kayman's picture

The big job killer is collecting taxes on employment.  Capital (equipment to replace workers) is not taxed until and unless it becomes profitable.

The Trade-Off between Capital and Labor is totally in favor of unemployment because of below market interest rates (Central Banks) and taxation of employment.

And in a nanny-state like Canada it is not going to change.  

Free stuff anyone?  Come and get your Free Stuff.

cherry picker's picture

It makes me feel better there are a few Canadians thinking the same as me.

Problem is the multitude of those who won't do anything to stop this rape of our country.  They rape the tax payer, they rape us for goods and services.  Our oil and electricity they sell with glee to our neighbors down South and they charge us twice for the same.  In my way of thinking Canadians should get a break on our natural resources and the USA should pay the premium.

Then, I want Homeland Security and the CIA out of here. 

We got our own cops and we don't need CSIS.  I wonder how much that idiot agency is costing us?

Anon2017's picture

It is not the Americans' fault that Ontario has had two lousy premiers in recent years. Why didn't it enter into a long term electricity contract with Hydro Quebec years ago like the State of New York did? 

Ink Pusher's picture

Yeah , the funny part is that "income tax" was orginally instituted as an "emergency temporary 5 year measure" to pay for our WW1 bill.

*This proves beyond any reasonable doubt that  most Canadian politicians and citizens cannot count past 5.

Before you start busting my balls, I am Canadian and I can count past 5. 


Anon2017's picture

Am I right in saying that Canadian lenders do not offer 30 year fixed rate home mortgages, which are widely available in the US? So after 5 or 7 years, your mortgage is reset from 3% to 6% and you can't afford the new payments based on your income. There may be a lot of forced sales in a few years. The real world may be worse than the article suggests.

Pernicious Gold Phallusy's picture

Re the first graph... what happens regularly in Jan-Feb and Jul-Aug to deflect the curve downwards for a little while?

oddjob's picture

Anybody with any brains has used low interest rates to help pay off their mortgage, not aquire more property.

U4 eee aaa's picture

The boomers are funding their kid's entrance into the housing market and supposedly buying retirement homes in the BC interior

cheka's picture

in this f-ed world of declining currencies the opposite is the prudent.  prepaying low interest debt is bad math

CoonT's picture

Hey wait!........................."The budget will balance itself"




Almost debt free. Counting down the minutes, till I get to sit back and watch this fekker burn down (Starting with Toronto, I hope)

logicalman's picture

The three problems facing most countries..........

Governments lie

Banks lie

People believe the lies.

BTW, some Canadians have no personall debt. I know this to be a fact.

What the government saddles you with is a different matter altogether.

Stormtrooper's picture

Wrong!  The Canucks are WAYYYY too smart to take out variable rate mortgages so large rate increases will have no effect on them.

Ugh, right????????????????

pitz's picture

Canadian variable rate mortgages are actually indexxed to "Prime", which is in and of itself, a rate that the bank sets at its sole discretion.

At least Americans had the sense to insist on indexxing to something independant of the chartered banks, such as LIBOR, or Fed Funds.

There are extremely generous terms (in favour of the banks) in Canadian mortgages.  For instance, the bank can demand repayment if they believe the property's value has declined. 

Buck Johnson's picture

Didn't know that, but that makes it that the bank has a house that they own and have to get rid of it to get their money back.  Actually that would explain why banks and the system would go out of their way to make sure that house prices never go down.  There fucked.




asteroids's picture

Mortgage rates are set, for them most part, by the US FED, not the BOC. The US FED is scheduled for another 4 hikes, at least, over the next few years. Canadians with million dollar mortgages are fucked.

pitz's picture

Nope.  The Bank of Canada, not the Federal Reserve, sets Canadian policy rates.  The US Fed is irrelevant in Canada.

Kayman's picture

The BOC follows the Fed whether they like it or not.  The Canuckelbuck has been rising because Poloz is marching lock-step with Yellen.