Story in the news tonight. My response when I heard this was “Ouch!” Here we are, patting ourselves on the back for not getting into the same mortgage meltdown as the US, and not being as silly about household debt, but instead of learning from your mistakes, here we are doing our damnedest to repeat them. Our debt load is now HIGHER than your average US household - how embarrassing!
Fellow Canadians, is this accurate for you? It isn’t for Jim and me, but we’re also not raising kids or putting them through school. How about you 'Murkins? Are you running around 148% debt load or less?
Only debt we have currently is the mortgage. All our assorted vehicles are owned outright, no major purchases are made or needed. In fact we are getting the house ready to put on the market as we want to move west to either Tucson Az or Fresno Ca as the universities there have a degree program I am trying to get into.
We are very careful with our money, we do not want to not be able to retire when the time comes. We got very lucky to not lose any money with bad investments. Although as I have made it plain, we are very grumpy that jackasses that got stupid with their money and are now getting a break piss us off, because we were very careful to live well within our means.
No debts or outstanding loans. My house, cars, and education were paid for years ago. My only credit card charges are for Amazon purchases, which are paid off at the end of the month. Major purchases (furniture, repairs, etc.) come out of a special savings account. If I can’t pay for it in cash, I guess I don’t really need it.
It’s been obvious to me for over a bloody year that Canada has been blowing a massive housing bubble, mostly due to the emergency low interest rates and an incredibly successful political and media propaganda campaign promoting the “fiscal prudence of our rock-solid banks with their rigorous lending standards.” Hogwash!
The hypocrisy is, frankly, sickening. We’ve been repeating, almost step by step, the mistakes of the Americans (minus the outright mortgage fraud) and we’re heading towards a similar result.
As for my own situation, the only debt I have is my mortgage, which was about 3x my yearly salary when I bought. Well within traditional debt servicing guidelines. I was pre-approved for much, much more but I told the banker I thought he was nuts.
This isn’t accurate for us - the credit cards are fully paid off every month and the car has been financed at 0% (although we could have paid it off completely at the time.). We have a mortgage with a floating rate, and income/expenses are stable.
What worries me about that average is that it means there must lots of people out there who are much more over-extended than 148%, cause it ain’t us, and I don’t think it’s very many of the people we know, either.
There are a lot of people, myself included, who have had to crawl deeper into debt due to layoffs and the inability to find employment. I managed to keep my house over a 10 month unemployment period by refinancing and going further into debt. The alternative would have been losing a house that I had been living in with my family for 15 years.
This, not to mention increased taxes (HST in Ontario and BC) along with skyrocketing energy prices have also left less money at the end of the month than previously budgeted for.
Hey, great for those of you who rode out the last 2 years of shitty economic times and didn’t need to get in over your head, but for a lot of us with mouths to feed, this was pretty much the only option. It sucks for sure.
I’m confused as to how significant debt load is as an indicator of economic status. Our debt is mostly composed of our mortgage, and our household debt to income is probably right at about 148%. However, the mortgage is asset backed, and our house is in a stable market.
There were some extra tidbits in the article I thought were significant:
It seems to me that net worth is much more indicative of good financial health. Debt load isn’t completely unimportant, but to be a useful indicator I think more knowledge of interest associated with the debt and other assets is required.
This is what I was trying to get at - increasing debt load does not necessarily indicate irresponsible borrowing or a debt crisis. If your income is significantly reduced (collecting unemployment vs. regular earnings) your debt load jumps up, through no mistake other than being laid off.
Leaffan, you’re one of those people whom I trust not to have done something really stupid. You have carefully borrowed in shitty times to protect your family and your house. I’m sure that’s been hard, but it was responsible and long-term smart.
There’s a huge segment of the population in whom I have no faith whatsoever, who don’t understand that credit cards need to be paid off, that defaulted loans and mortgages are bad for the whole economy, in short, whom I don’t trust at all. And when the interest rates go up, as they will, we ants will be looking after the grasshoppers.
I have to wonder about that, too. Living in Calgary we have some financial things going on that are unique to us, but I’ve felt for about a year, year and a half that what I was actually seeing was not what I was being told on the news (local or national). My husband and I are trying to tread very carefully, with an eye towards a second economic failure coming in a year or two. We were partially braced for the last one; I’m actively working towards being braced for the next one.
Le Ministre, I hadn’t thought of all the people who are well OVER 148% - yikes! I wasn’t in Calgary for the bust years of the eighties, but I’ve heard the stories from the people who were, and it wasn’t pretty. I’m still trying to wrap my head around people who think a credit card means you can spend more - how are they still missing the message that is all around us at this point?
When your family income shrinks by 65% overnight and remains that way for a year, credit cards are pretty difficult to avoid. The fact that we were able to ride it out without going bankrupt is a testament to our frugal living arrangements. But it has been a difficult last couple of years for a lot of Canadians. And it continues to be difficult for a great many.
Not everyone who has a higher-than-wanted debt did this to themselves.
There is debt and there is debt. When I bought my house in 1972, my debt was nearly twice the size of my income, but it was stable debt. Just giving a number doesn’t tell what kind of debt it is. I don’t think there were any NINJA (no income, no job or assets) loans. I wonder if there is a housing bubble. The real estate people are going around saying house prices will rise, which suggests we are in a bubble and they will really decline.
The kind of debt that worries me is credit card where the cardholder is paying only the minimum and paying 30% on the balance.
Except for a few thousand on the card (which is automatically paid off by the bank every month), I have no debt whatever. So someone out there has debt equal to 296% of income, to balance me. Even so, if it is just a mortgage and he stays employed, he remains in reasonable shape.
There is a line on my credit card statement each month that boggles my mind.
“At your current rates of interest, if you make only your minimum payment by its due date each month, it will take approximately 42 year(s) and 5 month(s) to repay the account balance shown on this statement.”
I pay mine off at the end of the month (I use my credit card for the rewards) but that’s just scary.
If I do some quick back of the envelope calculations, we are operating at about an 80% debt load. 95% of that is our house (with 5% for a 0% auto loan). We live in a townhouse complex where all the units are basically the same. Units have been selling for 50% more than when we bought. (So, sure the price could go down but we would be unlikely to be underwater.)
I just don’t see that as being in financial dire straights. Maybe I am nuts.
In the US, the next bubble will be the education bubble. Go to any bar that prides itself on serving only or mostly microbrews in Pittsburgh and you’ll see dozens and dozens of art history majors, communications majors, theater majors - or my personal favorite, peace studies majors - waiting tables if they’ve graduated or drinking $5 beer on credit if they’re still in school. It boggles the mind. Unemployed grad students without job prospects drowning their misery in loan-funded boozy nights. Graduated people with no discernible job skills.
The SO and I go out, but we carefully plan it around being taken out by our parents, happy hour specials, or groupons/restaurant.com/other specials. Last week I went out for sushi - BOGO. He had 22oz drafts for $2 last week with his buddies. Most people have no clue what a coupon is.
But many of our friends and even more of our acquaintances are buried in debt. Literally buried. They major in worthless things and then can’t get good jobs, while there is a huge need for medical technologists or engineers or nurses.
Other friends have had 25k weddings. They’ve bought a home in a crappy, unsafe neighborhood only so they can be “homeowners”, rather than saving for a safe place in a decent neighborhood. They seem to feel they “deserve” all the trappings of adulthood by the time they’re 30. One guy in law school doesn’t even want to be an attorney! He couldn’t even get a decent internship this summer. His wife wants to stay at home once they have kids - but is pursuing a phD in psychology.
If they are including the mortgage, then I’m not sure how this is a useful statistic. In areas like the Bay Area, if people only bought houses that cost less than 150% of their annual income, only like twenty people would own houses – the rest of us would be living in a Rio De Janeiro-style shantytown.
I think someone who has a relatively large but maneagable mortgage as being in far better financial shape than someone with the same annual income who is renting but has e.g. $50k in credit card debt.
I’m positive that your good friends in the USA have some criminals that they could lend to you if you really WANT to get the whole package. Or, heck, we’d even GIVE you some criminals. What are friends for?
This is very true. My buddy lost his job because the company he worked for moved to a smaller building and there was quite literally not enough room for all the employees. They tried to keep him on by telecommuting, but it was too impractical. He still has student loans, so moved back in with his parents, while aggressively job hunting.
On the other end of the spectrum though are our former tenants. They just bought a house.
We know what their debt load is like because we ran a credit check prior to renting to them. We almost declined to rent to them they have more available credit than anything I’ve ever seen! (I didn’t know one person could own that many credit cards!) The guy is a stay-at-home dad, and it seemed dubious that they could manage two small kids on a nurse’s income. But they were nice people. :smack:
We should have followed out gut instinct and declined. For the most part, they were able to manage the rent, although they’ve asked for a couple extensions a few times and paid late (no biggie to us). But as the property owners, we started getting collection notices for their various utility bills that were unpaid, “check must’ve got lost in the mail,” scenarios. That did start to bug us.
With this going on, they still managed to buy a 55" flat screen TV, the latest Playstation etc. (and not for Christmas either, these were mid-summer purchases). Then, because they couldn’t make ends meet, they asked for a rent reduction. Then they got scammy and we started looking into our legal options.
The fact that they were able to get financing for a $500k house tells me that something is very wrong with the system. They are an enormous credit risk. They’re current debt load must be astronomical!
On one hand you condem those the article is talking about and then you state that your debt load when you purchased your house put you at double the debt ratio they are discussing.
Personally I’m FINALLY on the below average side of this equation. After several years of illness and limited disabilty income followed by a layoff as soon as I was healthy we had worked our way fairly deep into the hole but we’re almost out. We’re now sitting slightly under 90% debt ratio including our mortgage.
