Summary
- Given the concerns being raised by authorities about household indebtedness in Canada, we thought it might be useful to examine the state of affairs in this regard.
- Household debt as a share of net worth has increased in Canada. However, the primary reason for this has been the drop in value of financial assets following the collapse of the stock market. This deterioration in household balance sheets in no way comes close to what occurred in the United States, where households suffered doubly on account of the steep decline in the value of their real estate assets.
- Though debt as a share of income is presently at a record high, the current interest burden on this debt is not worrisome owing to the fact that interest rates are far lower today than they were 20 years ago.
- The only reason the high level of household debt should be of concern has to do with the capacity to continue servicing it when interest rates begin to rise again.
