4 In 10 Canadians Can Not Cover Basic Expenses Without Going Deeper In Debt

Back on July 13, when the BOC hiked rates by 25bps to 0.75% - its first rate hike in 7 years - followed by another unexpected rate hike in September, we documented some troubling trends among Canadian households, including the record household debt-to-income ratio...

... the sliding average hourly wages...

... as well as the unprecedented  Canadian housing bubble which puts US home prices to shame...

... followed by a just as troubling observation that Canadian reliance on housing has never been greater in the form of loans secured by property reaching an all time high...

... we warned that the combination of rising interest rates and Canada's record reliance on debt, would be a dangerous combination.

Our fears were confirmed three months later, when BNN reported that a survey released yesterday found that almost half of Canadian households don’t feel financially prepared for further interest rate increases.

According to the Ipsos poll, conducted on behalf of MNP, 40% of respondents said they fear ending up in financial trouble if rates go up much higher, with one-in-three already feeling the impact of higher rates.

“It’s clear that people are nowhere near prepared for a higher rate environment,” MNP President Grant Bazian said in a release. “The good news is that there seems to be at least the acknowledgement now that rates are going to climb which might make people reassess their spending habits – especially using credit.”

It gets worse: 42% of respondents said they don’t think they can cover basic expenses over the next year without going deeper into more debt. The same number said they're within $200 of not being able to cover monthly expenses. This familiar "ponzi state" means that more than 4 in 10 Canadians effectively have no savings, which is ominously similar to US trends: as we reported earlier this year, a quarter of American adults can't pay all their monthly bills, while 44% have less than $400 in cash.

The Ipsos poll also found 70% of Canadians said they will take a more cautious approach to spending amid higher interest rates, which may be enough to choke off any economic growth and make the Canadian rate hikes a "one and one". affair 

Concern about rising rates is greater among lower-income Canadians - those who tend to rely on credit cards - according to the survey, as opposed to homeowners who said they are a bit more optimistic they can absorb a rate increase of... a whopping 1%.

Geographically, over half of Albertans say they’ll be more concerned about paying off debt if interest rates rise, which is more than those in British Columbia and Quebec, where less than half said they are worried. Meanwhile, Ontarians are the least concerned (44 per cent) about their ability to pay down their debts.

Comments

Iskiab IH8OBAMA Wed, 10/25/2017 - 06:31 Permalink

When Americans talk it really does show the value of education. An entire country who’s only knowledge of the outside world is looney toons is scary and dangerous.

Dangerous because it leads to people like trump trying to kill nafta. US trade with Canada is larger than US trade with the entire EU, it’s also pretty much the only country the US has a trade surplus with. Bring up Canada in the US and what do people think of? Beaver pelts. Combine with igorance with caring more about symbols than facts and you get a country of self-destructive dimwits.

In reply to by IH8OBAMA

Bryan Tue, 10/24/2017 - 15:39 Permalink

Canada obviously needs more and better socialism.  That would fix it.Note to Trudeau:  Venezuela is beating you... are you going to allow that to happen?!

Bryan kbohip Tue, 10/24/2017 - 15:57 Permalink

Yeah, diversity and no integration.  I'm sure the country will really run much better if enclaves of various ethnic and cultural groups all keep to themselves and don't communicate with other groups.  Don't even learn the language - those 'foreigners' living in your new country need to be more tolerant!  More immigrants that refuse to become Canadians (same issue in America) will surely be good.

In reply to by kbohip

AlphaSeraph JiminyCrickets Tue, 10/24/2017 - 17:40 Permalink

Aww you mean the Queen on every piece of our currency isn't just a neat little coincidence? The names of all the banks here isn't just a conspiracy theory? ROYAL Bank...Toronto DOMINION...Canadian IMPERIAL Bank of Commerce. Did I mention the Queen is on every piece of currency and the Prime Minister pledges allegiance not to the people of Canada, but to the Queen.Canadians are some of the most brainwashed and arrogant people on Earth.Signed, a Canadian.

In reply to by JiminyCrickets

rksplash asteroids Tue, 10/24/2017 - 18:13 Permalink

When I tell Canucks Canadian banks were bailed out in 2008 they call me a conspiracy theorist. They tell me the Canadian banking system is different then the American model. Somehow Canadians have become immune to the woes of financial chaos like a magic impenetrable shield set up by Young Street lawyers because hey we are so god damn decent little donuts eating beer drinking fat liberals that fart in the general direction of the gun toddling violent American pigs that dare to suggest we are hiding under uncle Sams cape in return for a future tank battle ground.Tabarnak! Vas shier mon Estie.

In reply to by asteroids

Iskiab rksplash Wed, 10/25/2017 - 06:24 Permalink

Canada didn’t bail out the banks, but they were subsidized. The government basicly underwrote all new mortgages for a while (like Iceland and Ireland) which was risky but nothing failed so there was little cost.

Canada’s real estate prices are either warranted (in places like toronto) or way overpriced (everywhere else). As property prices in Toronto and Vancouver boomed people in butt fuck nowhere started asking for more for their places too.

I expect Toronto prices will keep rising for a while. The supply is too restricted for prices to drop, you’d have to live here to understand. Here are some of the reasons:
- renter protection laws were just strengthened, so people have stopped renting out their places. My neighbour has a $1400 basement apartment that’s being left empty because the risk of some shithead moving in and never paying is too high. They can potentially never pay a cent in rent and take a year to remove, after causing thousands in damage
- Airbnb is more profitable. No issues getting rid of people, they come in for a specified time and leave after a specified period
- people using Airbnb and choosing not to rent their places has caused rental supply to drop, causing prices to skyrocket. An example is for an okay but nothing special 2 bedroom it’s $2500/month
- despite people saying property values are overvalued, $2500 month can get you a 400k mortgage to buy a condo
- toronto population is stagnant only because it’s totally saturated. If you include the surrounding area, Toronto is up a million people in 10 years or so.

In term of the city itself, we’ve had municipal incompetence for the last 50 years+. We’ve had no new highways, roads are being removed for bike lanes or dedicated streetcar lanes, etc... so the effect is Toronto has the worst congestion and longest commute times in North America. Commuting into the city is not an option, unless you can live with 2 hours plus commutes each way for work. Add onto that interest rates are going nowhere for the foreseeable future and Toronto real estate will keep going up. Those that can’t afford will sell, and those who can will buy.

In reply to by rksplash

GoldenDonuts Tue, 10/24/2017 - 15:43 Permalink

Three of those four live in either Toronto or Vancouver and can't pay because real estate has been bid up by the invasion to the point that locals can't afford to live in their home town.   A chinese guy answered my craigslist ad for a small boat that I was selling.  He bought the boat but I had to deliver it because he had no way of moving it.  His address was a condo downtown.   After meeting the guy and seeing his condo I was curious and checked the price of condo's selling in that building.One condo was $11,000,000 C  and a second was $13,000,000 C. For you yanks that is is about 8 to 10 million bucks U.S.They were nice condo's though.  What the guy was doing cruising craigslist for second had tenders.  I have no idea.

In.Sip.ient Tue, 10/24/2017 - 15:43 Permalink

1BtC = US$ 5,674.88 Competition is a bitch ain't it??? This reads more like another "oh pleasedon't raise interest rates" article than anything else. Problem is, the market is what it is, and eitherthe CBs compete... or they don't... !!!