Canadians must be mindful of ‘debt risks’: former CMHC chairman

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A former head of the Canada Mortgage and Housing Corporation is sounding the alarm over Canada’s mounting debt problem, one that has not been addressed in the country’s recent rise in house prices.

Robert Kelly, who chaired the CMHC from 2013 to 2018, said in an interview that the rate at which Canadians are getting into debt is a major red flag for the economy, but was hesitant to describe the country’s real estate situation as a “bubble.” “. ”

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“The reality is that Canadians have accumulated a tremendous amount of household debt over the past two decades and I don’t mean that just in absolute terms, I mean it in terms of comparing ourselves to other developed countries,” said Kelly, who is now in the board of directors of the Alberta Investment Management Corp.

According to Statistics Canada, the country’s debt-to-disposable income ratio rose to 170.7 percent in the third quarter of last year, meaning Canadian households owed an average of $1.71 for every dollar of disposable income.

The Organization for Economic Co-operation and Development (OECD) debt tracker found that Canada’s figure at 186% in 2019 was well above its G7 peers. That figure was above the U.S. rate of 105 percent in 2018.

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Kelly added that the larger mortgages some Canadians are taking to pursue housing as an investment make them much more vulnerable to a rise in mortgage rates.

“I don’t think the average Canadian sees the dangers of debt. If interest rates go up… the next time you get your five-year interest, as most Canadians do, you’ll have a much thinner wallet,” Kelly said. “Canadians have become accustomed to the idea that housing prices will continue to rise and rise over time. That is dangerous. It’s not a fantastic investment; it is a place to live.”

“One thing I do worry about is that people all over the world, but especially in Canada and the United States, have become accustomed to the idea of ​​ignoring the amount of debt they have.”

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