Few Quebec households deeply indebted
At a time when Canada’s most heavily indebted baby boomers are getting deeper and deeper in the hole, Quebec has the lowest proportion of such troubled households in the country, says Avery Shenfeld, chief economist at CIBC World Markets.
Shenfeld was commenting on a CIBC research report that found Canada’s most indebted borrowers to have been entirely responsible for a worrisome runup in average household debt over the past several years. Perhaps worse, the proportion of people over 45 years old within the heavily indebted group has shot up to about 44 per cent from about 36 per cent five years ago.
The implication, Shenfeld said, is that Canada’s debt-fuelled strength in home sales and consumer spending could weaken abruptly, since those driving this economic engine are approaching their borrowing limits. That could slow economic growth. It also suggests that with such a high proportion of the heavily indebted in an age group that is approaching retirement, this group’s ability to maintain a comfortable standard of living could become severely squeezed once they stop working.
The brighter side of the picture is that nearly two-thirds of Canadians have low or moderate debt and those in this group have shown strong self-discipline in recent years, making no contributiion at all to the rising total debt held by Canadian households. Instead , they seem to have devoted the savings from low interest rates to boosting their savings and investments.
Not surprisingly, a good deal of the debt squeeze is concentrated in provinces that have the highest home prices. British Columbia and Alberta have a significantly higher-then-average share of heavily indebted households, while Ontario is a little above. The Canadian average is 34 per cent of total households. Quebec, where home prices generally remain below those in the three other provinces, has a very low proportion of high-debt households, only about 25 per cent of the total.
Even with a chunk of Canadians carrying heavy debts, however, Shenfeld and Benjamin Tal, his co-author on the report, conclude that Canada as a whole is in very little danger of serious trouble anytime soon. The personal bankruptcy rate remains at its lowest level in 16 years and interest rates appear likely to stay low for the foreseeable future.
Canada’s average ratio of household debt to take-home pay has risen to a record 153 per cent, eliciting warnings from Finance Minister Jim Flaherty and Bank of Canada Governor Mark Carney, but a number of economists consider these expressions of concern overdone. A number of other countries have much higher debt ratios with no apparent harm to their economies: Denmark, Netherlands, Norway and Switzerland, among others.