British Columbians like to think of their province as the best in Canada, but there is one category where we should be unhappy with our first-place standing: We lead the country in personal debt.
The good news is that while we are still digging ourselves into a hole, we might not be digging as fast anymore.
On average, Canadians at the end of 2012 were carrying debt of $27,485 per person, according to a report by credit-monitoring firm TransUnion.
In B.C., the average was $37,244, the highest in the country.
On the positive side, B.C.’s figure dropped by .09 per cent while the national average rose six per cent.
Statistics Canada came out with a different take on the issue on Friday, with numbers suggesting that for all Canadians, the rate of increase in the debt load is slowing down. In the fourth quarter of 2012, households owed an average of $164.97 for every $100 of disposable, after-tax income.
While that is a record, it increased by only 27 cents over the previous quarter, the smallest increase in a year.
Federal Finance Minister Jim Flaherty and Bank of Canada Governor Mark Carney have been warning Canadians that their debt loads, particularly for homes, are dangerously high. This month, Flaherty took the unusual step of castigating one of the major banks for cutting its five-year fixed-rate mortgage to 2.99 per cent from 3.09 per cent.
Flaherty was worried that the Bank of Montreal’s move would send the big banks into a rush to the bottom, sucking imprudent Canadians into a frenzy of home-buying that they couldn’t afford. Fortunately, the competition ignored BMO’s cut, and it seems unlikely that a cut of 0.1 percentage points will start a stampede.
Still, as we get into the traditional spring home-buying season, Flaherty and Carney are right to urge us to take a close look at our balance sheets.
Debt in itself is not a bad thing. As long as consumers are careful and take on only as much debt as they can afford, that spending keeps the economy ticking along.
Flaherty and Carney, however, have been sweating over the rising debt levels, knowing that some consumers risk getting in over their heads. That’s why Flaherty tightened mortgage-lending rules last year, including cutting maximum amortization periods to 25 years from 30, which had the desired effect of splashing cold water on an overheated housing market.
Those in Ottawa are worried that low interest rates and easy mortgages were pushing house prices to unsustainable levels, creating a housing bubble like the one that collapsed so spectacularly in the U.S. Homeowners with small amounts of equity and huge mortgages could face a replay of the early 1980s, when house values fell below the value of mortgages and people walked away from homes they could no longer afford.
The numbers suggest that the 10-year climb of house prices has levelled off, and a new report by the TD Bank predicts that over the next 10 years, prices will rise only two per cent per year, about the rate of inflation.
Victoria’s house prices are expected to stay high, along with those of Vancouver, Toronto, Calgary and Edmonton. If the TD is correct, those who fear an exploding bubble can relax.
It doesn’t remove the problem of the debt load we already have, or the fact that we are much quicker to whip out the credit card than to plunk money into our savings accounts.
Too many of us are addicted to debt, and it will take a serious intervention to get us straight.
© Copyright 2013