The year was 2005. Tiger Woods was beginning what was sure to be a long and blissful marriage to wife Elin, Mel Gibson was the darling of Hollywood after steering “Passion of the Christ” to over $600 million at the box office and US house prices were at record highs after 5 consecutive years of stellar growth. Life was good. Little did we know that Mel was on the verge of a very public break down, Tiger was about to get caught with his pants down and the US economy was standing on the precipice of financial meltdown. The housing market was built on a foundation of weak lending standards, rising personal debt and a speculative fever which had gripped the nation and it was a foundation which was about to crumble, claiming with it some of the largest institutions on Wall Street.
Fast forward five years and with the US still struggling to come to terms with seemingly insurmountable levels of debt and unemployment levels at nearly 10% it is little surprise that Statistics Canada’s report (Monday the 13th of December) highlighting Canadian household debt-to-income levels of 148% has caused some consternation. This figure actually puts Canadian debt levels higher than US debt for the first time in 12 years. In fact the Canadian Payroll Association now suggests that 59% of Canadians would struggle to pay their bills if denied even a weeks pay, a fact which when coupled with the Bank of Canada’s figures showing credit card debt has soared from $36.7bln in December 2004 to over $57.3bln in October 2010 suggests that a reconsolidating of debt would be beneficial to a great deal of Canadians. This is how we at Morcan Direct feel we can help our clients combat these soaring levels of personal debt. While the average Canadian is able to avail of over $125,000 in equity in their homes there seems to be an unwillingness to utilize this option perhaps in the light of the demonizing of mortgage lenders following the practices of our US counterparts.
While comparing the US to Canada may be a fun exercise for those seeking to contextualize these figures there is little comparison between the two markets. Similar debt levels in the US were fed by a frenzy of speculation in subprime mortgages and irresponsible, myopic lending standards. Certainly when we look at the collapse of the US subprime market, where lending practices led to a surge in NINJA (no income, no job or assets) loans and Canadian regulations insuring strict qualifying rates, a minimum 5% down-payment and the need for all high debt mortgages to be insured it bares stark contrast to the US circa 2007. While Governor Mark Carney recognizes the need for Canadians to address their debt levels, which have seen about a 7% increase over the last year, comparisons with the US are over simplistic.
If one wishes to adopt a pessimistic stance on the Canadian economy I would suggest pointing towards the increased stranglehold credit cards are having on Canadians. Investing in housing has proven very profitable for Canadians in the past couple of years and several studies have highlighted the intangible benefit of investing in a house, most notably an ability to force individuals to save. There are no such positives that come from credit card debt. The Governor may well look to decrease amortization schedules and increase qualifying interest rates to stem these debt rates but I believe if people want to address the situation of growing debt we should be looking to make low interest rate mortgages more accessible to people looking to refinance their high interest rate credit card debt. Morcan Financial can help you escape the clutches of credit card companies and give people repayments which are affordable.
If you or anyone you know is struggling with seemingly insurmountable credit card debt we assure you there is another way. To reconsolidate your debt and hear about the competitive rates Morcan Financial can offer you please feel free to contact us.