March 28, 2012

“The news is out, and it’s all over town," as Hank Williams once wrote. Interest rate hikes have already been seen from the banks on mortgages, unprovoked by a Bank of Canada rate increase because there wasn’t one. The Royal Bank and the TD Bank raised mortgage rates in February to 3.39% on their four year fixed rate. This reenergized speculation that a Bank of Canada interest rate hike looms on the horizon. This first step with higher interest rates also renewed competition over 4 and 5 year locked-in mortgages.

Recent reports of a condo glut further cloud the financial sky. Will prices drop? Can you take a chance and buy an enormously expensive home with the hint that it may drop in value?

The question of household debt continues to rumble throughout the land. The experts are troubled by the high levels of household debt although the debt levels have been increasing each and every year since the 1970s – most dramatically since the new Millennium. But what has been done to better understand what compels so many people to borrow so much money? Is there any valid or reliable research on who owes all of the household debt? Which income groups?

I have complained many times before that the current method of including consumer debt with mortgage debt misrepresents the facts. Although nothing is really current in Canada, in the United States, in 2009, homeownership was assessed at 67%. This would leave 33% of the population as renters. This is a large group that do not have mortgage debt but nonetheless get included in the household debt paradigm.

Some suggest that the rate of homeownership is the same in Canada. My question prevails. Which group has too much debt? The renters or the homeowners? Which group owes most of the consumer debt?

Then, we would like to know what kind of consumer debt is owed – car loans, credit cards, lines of credit, student loans etc.

Which income groups owe the most consumer debt? Lower, middle or higher incomes?

There are many other very important demographics such as age, gender, family size, geographical location and so on. It would be nice to have better statistics and information before making definitive statements about debt loads and debt problems.

It would be interesting to see the relationship between home owners and their usage of consumer credit. It is a tempting hypothesis to suggest that many individuals and families borrow because their housing costs are exorbitant. This is a huge cause of consumer debt problems for both home owners and renters. The cost of transportation and day care are other expenses that distress middle and lower income families.

An interest rate hike hurts those who owe the most. What we do know statistically from the last 10 years in Canada is that the richest one-fifth of the population accounted for 44% of the annual incomes and held 69% of the accumulated wealth. The middle fifth of households received 17% of the incomes and 8% of the wealth. The poorest fifth of households claimed a meagre 5% of the after income tax incomes and possessed absolutely no wealth.

There is more to household debt than one might think.

A new federal budget will be tabled on Thursday, March 29th, 2012. Little good news is expected as austerity blows in the wind for old age pensioners and anyone who might owe any money.

Remember, if you are experiencing financial difficulties do not wait. Call Solutions Credit Counselling at 1(877)588-9491 or fill out our Debt Consolidation Questionnaire and get your Free Credit Counselling Advice today.

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