I knew, and you obviously know, that Canadians are in a lot of debt. But holy hell, it’s really bad.
Unsurprisingly, personal debt is highest in Canada’s biggest and most expensive cities. So let’s take a look at the situation in Toronto and Vancouver.
According to housing agency Canada Mortgage Housing Corp., Vancouver residents spent their way into a 242 per cent debt-to-income (DTI) ratio. That means Vancouverites spend $2.42 for every dollar they earn. That actually seems impossible, let alone dangerously unsustainable.
Things aren’t much better in Toronto, of course. Torontonians are burdened by a DTI – aka Down to Indulge – ratio of 208, which means they’re spending $2.08 for every dollar they earn.
These outrageous numbers can be primarily explained by both cities’ astronomical housing prices. Mortgage debt is responsible for around two-thirds of all Canadians’ household debt. And while this is all bearable when interest rates are steady, as they currently remain, things can quickly spiral out of control when the Bank of Canada decides run a tighter ship.
“While households may be able to service their debt during periods of low interest rates, some may face challenges when rates rise,” said the CMCH’s report. “Highly indebted households have usually few debt consolidation options to respond to increasing debt service costs.”
Worst case, people will be forced to default on their loans. And we all know how that story can go.