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Consumer Debt
June 8, 2021
3:03 pm
Vatox
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June 8, 2021
9:23 pm
Bud
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Who cares! They will bail them out.

June 9, 2021
5:55 am
Alexandre
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Sign for mortgage for modest $1M house, and consumer debt goes up by $1M. Just 1,000 people buy new $1M houses around Toronto - consumer debt goes up by another billion.

$2 trillion in debt is just a sign of inflation in real estate.

The important part which is missing is the trend of the rate of defaults on mortgages and other types of loans. As long as people keep repaying their loans and interest, not much to worry about.

June 9, 2021
6:28 am
Loonie
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There is a concern that people who've been able to arrange deferred payments may not all be able to resume them due to job loss etc.

So far, however, I don't know that defaults have been high. The CUs whose AGMs I have attended report very low defaults. Perhaps the "stress test" is working.

June 9, 2021
12:49 pm
Vatox
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This is my concern here. It is the debt servicing ratio that means the most.
https://betterdwelling.com/canadians-spend-65-more-income-servicing-debt-than-americans-highest-in-g7/

June 9, 2021
2:29 pm
Alexandre
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Vatox said
This is my concern here. It is the debt servicing ratio that means the most.
https://betterdwelling.com/canadians-spend-65-more-income-servicing-debt-than-americans-highest-in-g7/  

Canadian Households Spend 12% Of Income Servicing Debt

That is from the article you provided link to. While %% is higher than in other countries, the thought that a Canadian household only spends 12% of income for servicing mortgage, car loans, credit card balances is quite reassuring.

The counter argument made by that same article is equally amazing:

The narrative that Canadian debt service ratios are “not that bad,” lacks any context. Households devote a whole 5 points more to carrying debt, than any of their economic peers… just to continue having debt in good standing. Those are points removed from spending in the productive economy.

So, Canadian household financing two cars instead of one, buying larger house that will be filled by more furniture and other stuff (bought somewhere), having larger credit card bills from spending more - that somehow decreases spending in the economy?

Wait, there is more:

Debt is future income used today. People pull forward their consumption, and then pay for it plus interest. In the short run, it’s great for the economy. You’re not just getting what people can buy today, but the economy also enjoys their future income now. The issue is, that person needs to devote a regular stream of income to pay it off. Your human capital stock now has to cut back on spending in other parts of the economy.

What "other parts of economy?" Granted, I started to visit Casino Niagara less frequently after I've got a mortgage, and had strict personal rules on how much could I spend there, but what other parts of economy I had to cut back on spending?

If they think I had to cut back spending on groceries, furniture, home electronics, annual vacations just because I got mortgage, financed one car and leased another - they should think again.
Instead, I worked harder and got well deserved promotion, with nice salary increase.

June 9, 2021
3:16 pm
Vatox
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Well the entire servicing number is an average, there are a boatload of people with higher numbers and most of us here do not represent those numbers. I’m seeing a trend on this site and everyone here needs to understand that we savers aren’t the average Canadian. We are a serious minority.
Last time I checked 49% of Canadians were $200 or less from bankruptcy at the end of each month. Here is an article saying it’s now higher.
https://www.globenewswire.com/news-release/2021/04/08/2206577/0/en/Over-Half-53-of-Canadians-Within-200-of-Not-Being-Able-to-Cover-Their-Bills-and-Debt-Payments-Up-10-Points-Since-December-Reaching-a-Five-Year-High.html

June 9, 2021
3:41 pm
Bill
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You can always find alarming news/stats, same with good news, e.g. restricted pandemic spending opportunities has allowed many households to build up savings ready to spend when things open up again.

I do agree out of the billions of humans there are just a handful of regulars here, don't take this place as any indicator of what's going on at large. And I agree with Bud, we'll only vote for whoever keeps the spending taps open for us so I don't see any problems on the near horizon, i.e. they'll bail us out or we turf for whoever will.

June 10, 2021
12:06 pm
Norman1
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The BNN article only tells half the story.

The full press release from Equifax Canada is at Hot Housing Market Drives Overall Consumer ​​​​​​​Debt Higher Ahead of New Mortgage Stress Test.

What is not mentioned in the BNN article is that average credit card balances are down 9.9% from a year ago. As well, average consumer debt (excluding mortgages) is down 4.2% from Q1 2020:

Credit card debt plummets to a new low, reaching 2015 levels

Despite the increased activity in the housing market, most Canadians are living more frugally as credit card debt has continuously declined since the pandemic began. Credit card debt is now at its lowest level in six years as consumers are paying off debts more than they are spending. On average, credit card balances dropped by 9.9 per cent in Q1 of this year compared to last year and by 4.2 per cent compared to the last quarter of 2020.

The number of cards per consumer has been on a downward trajectory since 2016. Consumers are moving away from multiple cards and being more careful with their credit. Younger consumers who are more likely to miss payments on credit cards have also seen a drop in their spend-to-payment ratio. Likewise, Gen Z has managed to reverse this ratio and are also paying off their credit card debt.

The average consumer debt (excluding mortgages) dropped again this quarter to $20,430, which is a year-over-year decrease of 4.2 per cent from Q1 2020.

June 10, 2021
1:56 pm
Kidd
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For your enjoyment, i hope this link works.

Friendly Reminder: Inflation Rate from wallstreetbets

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