CIBC signals rising household debt no cause for concern
Tags: CIBC, Household Debt
CIBC is dispelling the notion that irresponsible spending habits are driving Canadian household debt levels higher.
Benjamin Tal, the bank’s deputy chief economist, suggests the real culprit is the swelling size of the average mortgage across the country. He says increased mortgage borrowing accounts for 80 percent of the buildup in household debt over the past year, and that the trend is most prominent in the red-hot markets of Vancouver and Toronto.
"Even as Canadians take on higher debt levels, it's clear the vast majority are paying their bills on time," Tal said in the report, citing a recent decline in delinquency rates to their lowest level since 2009. That was even the case in Alberta, which is grappling with the economic fallout from weak commodity prices.
What's more, Canadians didn't jump at the opportunity to ramp up their borrowing when the Bank of Canada cut its benchmark interest rate to a record low of just 0.5 percent in June as some observers had predicted, according to Tal.
"We basically paid 50 basis points [to get] the dollar down the same amount that other currencies did," he told BNN in an interview.
However, price gains for high-end homes in Vancouver and Toronto are accelerating much faster than lower-end homes, Tal warns. CIBC found prices for luxury homes in Vancouver have climbed four times as quickly as the least expensive properties over the past decade.
"Our research suggests this may have major implications for homeowners looking to move up who now find they are priced out of this segment of the housing market," Tal said.
Tal also cautions that home prices in Vancouver and Toronto are in for a modest correction when interest rates eventually rise over the next few years. He says tighter monetary policy will trigger selling in the lower-end of the condominium market first, which will then ripple through to other types of condos and low-rise homes.
"Some investors will start selling, there will be excess supply in the market, and that's when I see some downward pressure on prices," he told BNN.
Benjamin Tal, the bank’s deputy chief economist, suggests the real culprit is the swelling size of the average mortgage across the country. He says increased mortgage borrowing accounts for 80 percent of the buildup in household debt over the past year, and that the trend is most prominent in the red-hot markets of Vancouver and Toronto.
"Even as Canadians take on higher debt levels, it's clear the vast majority are paying their bills on time," Tal said in the report, citing a recent decline in delinquency rates to their lowest level since 2009. That was even the case in Alberta, which is grappling with the economic fallout from weak commodity prices.
What's more, Canadians didn't jump at the opportunity to ramp up their borrowing when the Bank of Canada cut its benchmark interest rate to a record low of just 0.5 percent in June as some observers had predicted, according to Tal.
"We basically paid 50 basis points [to get] the dollar down the same amount that other currencies did," he told BNN in an interview.
However, price gains for high-end homes in Vancouver and Toronto are accelerating much faster than lower-end homes, Tal warns. CIBC found prices for luxury homes in Vancouver have climbed four times as quickly as the least expensive properties over the past decade.
"Our research suggests this may have major implications for homeowners looking to move up who now find they are priced out of this segment of the housing market," Tal said.
Tal also cautions that home prices in Vancouver and Toronto are in for a modest correction when interest rates eventually rise over the next few years. He says tighter monetary policy will trigger selling in the lower-end of the condominium market first, which will then ripple through to other types of condos and low-rise homes.
"Some investors will start selling, there will be excess supply in the market, and that's when I see some downward pressure on prices," he told BNN.
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