# Canadians carrying 148% Household Debt Load: Less Smugness Coming Up **URL:** \ **Category:** Miscellaneous and Personal Stuff I Must Share\ **Created:** [December 14, 2010, 1:31am UTC](https://boards.straightdope.com/t/canadians-carrying-148-household-debt-load-less-smugness-coming-up/564068 "2010-12-14T01:31:09Z")\ **Posts on this page:** 16\ **Page:** 3
**Author:** ![LionelHutz405](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/lionelhutz405/32/536_2.png) [@LionelHutz405](https://boards.straightdope.com/u/LionelHutz405)\ **Post date:** [December 15, 2010, 6:28pm UTC](https://boards.straightdope.com/t/canadians-carrying-148-household-debt-load-less-smugness-coming-up/564068/41 "2010-12-15T18:28:51Z")
> [@Quercus](#): > > How can an income of $70,000 afford a $680,000 house? “the ability to borrow your brains out, unprecedented leverage, and a debt that will probably never be repaid” [http://www.greaterfool.ca/2010/12/03/the-underclass/](http://www.greaterfool.ca/2010/12/03/the-underclass/) ---
**Author:** ![Swallowed\_My\_Cellphone](https://avatars.discourse-cdn.com/v4/letter/s/9d8465/32.png) [@Swallowed\_My\_Cellphone](https://boards.straightdope.com/u/Swallowed_My_Cellphone)\ **Post date:** [December 15, 2010, 6:41pm UTC](https://boards.straightdope.com/t/canadians-carrying-148-household-debt-load-less-smugness-coming-up/564068/42 "2010-12-15T18:41:28Z")
Here’s a [Macleans](http://www2.macleans.ca/2010/02/02/awash-in-a-sea-of-debt/) article from Feb 2010 on Canada’s housing bubble, that says over the last two decades Canadian mortgage debt has almost quadrupled, and credit card debt seems to have essentially followed suit. ETA: Here’s a useful tid-bit > [@"Macleans](#): > > When a household’s debt-to-service ratio, a measure of monthly payments relative to income, breaks past the 40 per cent mark, it’s considered to be “financially vulnerable” to financial shock. What the bank found in its review was that if rates rose to the higher level (article mentions 3.2% and 4.5% as theoretical stress-test), 9.6 per cent of households would find themselves in that danger zone. ---
**Author:** ![Malthus](https://avatars.discourse-cdn.com/v4/letter/m/85f322/32.png) [@Malthus](https://boards.straightdope.com/u/Malthus)\ **Post date:** [December 15, 2010, 6:50pm UTC](https://boards.straightdope.com/t/canadians-carrying-148-household-debt-load-less-smugness-coming-up/564068/43 "2010-12-15T18:50:09Z")
I wonder what percentage dopers are saving. Sounds like a thread idea. ---
**Author:** ![ThePylon](https://avatars.discourse-cdn.com/v4/letter/t/b9e5f3/32.png) [@ThePylon](https://boards.straightdope.com/u/ThePylon)\ **Post date:** [December 15, 2010, 6:54pm UTC](https://boards.straightdope.com/t/canadians-carrying-148-household-debt-load-less-smugness-coming-up/564068/44 "2010-12-15T18:54:18Z")
> [@Quercus](#): > > But Pylon’s numbers look screwy for Vancouver. How can an income of $70,000 afford a $680,000 house? Oh, wait, median income but average (I assume mean) house price. Nice little lesson in the difference between mean and median, and how a few very large items can skew the mean high, when the median still stays low. Okay - Median for Greater Vancouver in 2010 is $750,000. Now one stat that does conflagrate the whole thing is that renters aren’t included in the house price numbers, but are in the incomes… but I believe those are also in the debt-to-income numbers. I used statscan numbers for income and CREA numbers for housing… I found a source of medians and will calculate away… ---
**Author:** ![Euphonious\_Polemic](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/euphonious_polemic/32/3002_2.png) [@Euphonious\_Polemic](https://boards.straightdope.com/u/Euphonious_Polemic)\ **Post date:** [December 15, 2010, 7:01pm UTC](https://boards.straightdope.com/t/canadians-carrying-148-household-debt-load-less-smugness-coming-up/564068/45 "2010-12-15T19:01:42Z")
> [@Quercus](#): > > But Pylon’s numbers look screwy for Vancouver. How can an income of $70,000 afford a $680,000 house? Oh, wait, median income but average (I assume mean) house price. Nice little lesson in the difference between mean and median, and how a few very large items can skew the mean high, when the median still stays low. Couple of points about Vancouver housing: Most news articles completely screw up the difference between mean and median house price and often use the terms interchangably. Yes, you are quite right that the mean can be skewed high by some high priced sales. This fact is quite lost on most news reporting organizations. Vancouver City prices are much higher than Greater Vancouver Prices. - News organizations often report Vancouver house prices and fail to disclose that they are **not** including Surrey, Burnaby, New Westminster, North Van etc., which all have lower mean and median house prices than the City of Vancouver. ---
**Author:** ![Euphonious\_Polemic](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/euphonious_polemic/32/3002_2.png) [@Euphonious\_Polemic](https://boards.straightdope.com/u/Euphonious_Polemic)\ **Post date:** [December 15, 2010, 7:09pm UTC](https://boards.straightdope.com/t/canadians-carrying-148-household-debt-load-less-smugness-coming-up/564068/46 "2010-12-15T19:09:18Z")
> [@ThePylon](#): > > Okay - Median for Greater Vancouver in 2010 is $750,000. > > Now one stat that does conflagrate the whole thing is that renters aren’t included in the house price numbers, but are in the incomes… but I believe those are also in the debt-to-income numbers. > > I used statscan numbers for income and CREA numbers for housing… I found a source of medians and will calculate away… Where did you find the median price of $750,000 for greater Vancouver? I looked at the CREA site, and all I could find was [This page](http://www.crea.ca/public/news_stats/statistics.htm) that told me that the October 2010 **AVERAGE** price for **VANCOUVER** was just over $707,000 The median price for houses is almost always LESS THAN the average price, due to a few very expensive houses pushing the mean up. ---
**Author:** ![ThePylon](https://avatars.discourse-cdn.com/v4/letter/t/b9e5f3/32.png) [@ThePylon](https://boards.straightdope.com/u/ThePylon)\ **Post date:** [December 15, 2010, 7:10pm UTC](https://boards.straightdope.com/t/canadians-carrying-148-household-debt-load-less-smugness-coming-up/564068/47 "2010-12-15T19:10:56Z")
> [@LionelHutz405](#): > > “the ability to borrow your brains out, unprecedented leverage, and a debt that will probably never be repaid” > > [http://www.greaterfool.ca/2010/12/03/the-underclass/](http://www.greaterfool.ca/2010/12/03/the-underclass/) I hope taking Garth with a grain of salt isn’t naive. He does make some sense, though. Scary stuff - I’ve been reading that on and off for a while. I asked him a question a couple of years ago, and got my question (and his one-word reply) added on to one of his posts - wasn’t the nicest, but he was probably right…! ---
**Author:** ![ThePylon](https://avatars.discourse-cdn.com/v4/letter/t/b9e5f3/32.png) [@ThePylon](https://boards.straightdope.com/u/ThePylon)\ **Post date:** [December 15, 2010, 7:21pm UTC](https://boards.straightdope.com/t/canadians-carrying-148-household-debt-load-less-smugness-coming-up/564068/48 "2010-12-15T19:21:09Z")
> [@Euphonious\_Polemic](#): > > Where did you find the median price of $750,000 for greater Vancouver? I looked at the CREA site, and all I could find was [This page](http://www.crea.ca/public/news_stats/statistics.htm) that told me that the October 2010 **AVERAGE** price for **VANCOUVER** was just over $707,000 > > The median price for houses is almost always LESS THAN the average price, due to a few very expensive houses pushing the mean up. MLS - but as of May. That may be coming down… Nevertheless. The point stands. A Vancouver family who makes $70K would be owning a $650K single family home. They could have bought the thing for less. In the event they could get themselves down to a mortgage of 50% of the present value, their ratio would be almost 500%. ---
**Author:** ![Malthus](https://avatars.discourse-cdn.com/v4/letter/m/85f322/32.png) [@Malthus](https://boards.straightdope.com/u/Malthus)\ **Post date:** [December 15, 2010, 7:26pm UTC](https://boards.straightdope.com/t/canadians-carrying-148-household-debt-load-less-smugness-coming-up/564068/49 "2010-12-15T19:26:52Z")
> [@ThePylon](#): > > I hope taking Garth with a grain of salt isn’t naive. He does make some sense, though. Scary stuff - I’ve been reading that on and off for a while. I asked him a question a couple of years ago, and got my question (and his one-word reply) added on to one of his posts - wasn’t the nicest, but he was probably right…! I definitely take him with a grain of salt. High real estate prices in places like Vancouver and Toronto are not simply a product of easily available credit and the average school principal’s housing greed. They are the product of a bunch of market factors, many of which he has not bothered to mention, or doesn’t know about - like the fact that a good percentage of the high-end real estate in Vancouver is being bought up by Asians as investment property; and the fact that city populations in these cities are much denser today than they were in the 1950s. Certainly, cheap credit has its impact - along with much else. He’s blaming one factor when many are at work. ---
**Author:** ![Rysto](https://avatars.discourse-cdn.com/v4/letter/r/ecccb3/32.png) [@Rysto](https://boards.straightdope.com/u/Rysto)\ **Post date:** [December 16, 2010, 12:12am UTC](https://boards.straightdope.com/t/canadians-carrying-148-household-debt-load-less-smugness-coming-up/564068/50 "2010-12-16T00:12:08Z")
> [@Malthus](#): > > I definitely take him with a grain of salt. High real estate prices in places like Vancouver and Toronto are not simply a product of easily available credit and the average school principal’s housing greed. They are the product of a bunch of market factors, many of which he has not bothered to mention, or doesn’t know about - **like the fact that a good percentage of the high-end real estate in Vancouver is being bought up by Asians as investment property** ; and the fact that city populations in these cities are much denser today than they were in the 1950s. > > Certainly, cheap credit has its impact - along with much else. He’s blaming one factor when many are at work. I definitely take Garth Turner with a grain of salt, but the bit that I bolded is hardly reassuring. I live in Waterloo, ON. This past summer I briefly looked into buying a condo. But as soon as I started running the numbers, it immediately became obvious that it just didn’t make any financial sense. To buy a condo in a comparable location to my current apartment, my mortgage payments would have been something like twice my current rent(admittedly, I was looking at a shorter amortization period). Even with a standard 25 year mortgage it would have been something like 46% higher than my current rent. And that’s without considering condo fees, taxes, whatever. I could have afforded it, but it would have been near the edge for me, and that’s _with_ the historically low interest rates we’re seeing today. And then I got to thinking: I’m making a really, really good income for somebody my age. Who on earth was I supposed to sell this condo to in a few years’ time? How much could I possibly expect it to appreciate by? Instead, I’m plowing the money I’m saving into mutual funds. ---
**Author:** ![Rysto](https://avatars.discourse-cdn.com/v4/letter/r/ecccb3/32.png) [@Rysto](https://boards.straightdope.com/u/Rysto)\ **Post date:** [December 16, 2010, 12:21am UTC](https://boards.straightdope.com/t/canadians-carrying-148-household-debt-load-less-smugness-coming-up/564068/51 "2010-12-16T00:21:11Z")
And the type of person that I think that is really worrying the BoC is not people like Leaffan(who’s really in that situation through no fault of his own), and more people [like this](http://www.greaterfool.ca/2010/12/10/the-spoiler-2/): > [@Garth Turner](#): > > On the job, he’s a hero. Knocking down flames. Ripping into wrecked cars. Pumping life back into limp forms. But without a helmet or a fireman’s aura, he’s no action figure for his family. > > Sammy lives in a major Alberta capital city that begins with E, has a $450,000 house with a $325,000 mortgage, three daughters, a quad, a stay-at-home wife, no savings, a sled, no TFSA, no RRSP, no educational savings plan, a boat and, at 46, plans to retire in nine years. > > “Got it made,” he told me. “Don’t need to save. Have a pension.” > > Indeed he does. It will pay $3,250 a month at age 55 – at which time he’ll have two daughters in university and a mortgage of about $300,000. In other words, he’s cooked. Assuming mortgage rates are normalized by 2020, his monthly should be $2,300. With insurance and property tax, about $2,800 – or more than his entire after-tax pension payment. As for food, gas, clothing, cable and his kids’ tuition, there’s always a few shifts at the the Wal-Mart on Mayfield NW. > > But that’s not the real problem. It’s Sammy’s other houses – all three of them. Brand new, bought in the burbs from a builder for $325,000 each two years ago, now worth $285,000 on a good day. Total down payment for all three: $48,750. Total mortgage debt: $926,250. Total annual rent: $59,400. Total carrying costs: $52,200. Total equity: zero. In fact, the smoke eater’s in negative equity by $71,000 and with any vacancy or mortgage rate increase will also be in negative cash flow. Un. Mitigated. Disaster. > > So, I asked, why the hell did you do it? > > The answer was what you’d expect: (a) Real estate’s safe. (b) All the guys were buying. (c) The bank gave us the money. I really feel like I’ve seen this movie before, and it scares me a little. ---
**Author:** ![SandyHook](https://avatars.discourse-cdn.com/v4/letter/s/dec6dc/32.png) [@SandyHook](https://boards.straightdope.com/u/SandyHook)\ **Post date:** [December 16, 2010, 12:52am UTC](https://boards.straightdope.com/t/canadians-carrying-148-household-debt-load-less-smugness-coming-up/564068/52 "2010-12-16T00:52:58Z")
For no good reason except it’s fun to brag about this; we have no household debt and haven’t had any since Ms Hook retired December 1, 2008. Well, there’s what ever is on the card. But that’s paid off every month. ---
**Author:** ![Malthus](https://avatars.discourse-cdn.com/v4/letter/m/85f322/32.png) [@Malthus](https://boards.straightdope.com/u/Malthus)\ **Post date:** [December 16, 2010, 3:05pm UTC](https://boards.straightdope.com/t/canadians-carrying-148-household-debt-load-less-smugness-coming-up/564068/53 "2010-12-16T15:05:14Z")
> [@Rysto](#): > > I definitely take Garth Turner with a grain of salt, but the bit that I bolded is hardly reassuring. > > I live in Waterloo, ON. This past summer I briefly looked into buying a condo. But as soon as I started running the numbers, it immediately became obvious that it just didn’t make any financial sense. To buy a condo in a comparable location to my current apartment, my mortgage payments would have been something like twice my current rent(admittedly, I was looking at a shorter amortization period). Even with a standard 25 year mortgage it would have been something like 46% higher than my current rent. And that’s without considering condo fees, taxes, whatever. I could have afforded it, but it would have been near the edge for me, and that’s _with_ the historically low interest rates we’re seeing today. And then I got to thinking: I’m making a really, really good income for somebody my age. Who on earth was I supposed to sell this condo to in a few years’ time? How much could I possibly expect it to appreciate by? > > Instead, I’m plowing the money I’m saving into mutual funds. I’m not saying that it makes financial sense for everyone to buy real estate, only that his account of what is happening in the market is skewed. The fact that Asians are buying up investment properties could in fact be a sign of a bubble - presumably, if conditions change, they could all be just as anxious to sell them again - but OTOH, it is a factor not necessarily dependant on financial conditions in _Canada_. It may be more dependant on conditions in Asia (particularly, China) which make Canada seem a safe haven. Another, quite seperate factor is the increasing density in places like Vancouver, Toronto, and Southern Ontario generally. If this is a trend likely to continue, it may work against the notion that this is an unsustainable bubble. I’m of two minds on this issue. There is no doubt that historic low interest rates are fueling speculation, which points towards a bubble. OTOH, in Toronto at least, I’ve been hearing that real estate is in an unsustainable bubble for the last decade. Maybe that means we are due for a massive pop, I dunno. From 2000 through 2005, I refused to buy, on the basis that house prices _had_ to implode; that was the conventional wisdom at the time, by those knowledgeable about financial matters - plus I wanted to save up a big deposit. But prices kept increasing. Finally I lost patience and bought - and everyone I knew had a good laugh, thinking I was buying at the top of the market … but in my area, prices simply continued to increase. Then came the great recession, and I thought that, surely, there would be a correction now - but prices simply stagnated for a year, and then continued to slowly increase. Since 2005, the average price in my area has increased 20%. That’s not exactly an earth-shattering ROI, of course. But what it is, is a massive decrease in affordability. I could afford the house I bought in 2005 - I didn’t go out on a financial limb. I could not afford the same house in 2010, without going out on a limb. If I was to wait until 2015, will there be a great correction, and could I afford that same house (assuming no salary increase)? I dunno. It is certainly possible. The issue is whether that increase is truly the result of a bubble, or whether this particular location is simply moving out of the financial reach of the average person. The Globe released a map of Toronto the other day, showing that the city is quickly splitting into “have” and “have not” areas - the middle class is being squeezed out. ---
**Author:** ![The\_Lurker\_Above](https://avatars.discourse-cdn.com/v4/letter/t/dc4da7/32.png) [@The\_Lurker\_Above](https://boards.straightdope.com/u/The_Lurker_Above)\ **Post date:** [December 16, 2010, 8:54pm UTC](https://boards.straightdope.com/t/canadians-carrying-148-household-debt-load-less-smugness-coming-up/564068/54 "2010-12-16T20:54:25Z")
> [@Rysto](#): > > I definitely take Garth Turner with a grain of salt, but the bit that I bolded is hardly reassuring. > > I live in Waterloo, ON. This past summer I briefly looked into buying a condo. But as soon as I started running the numbers, it immediately became obvious that it just didn’t make any financial sense. To buy a condo in a comparable location to my current apartment, my mortgage payments would have been something like twice my current rent(admittedly, I was looking at a shorter amortization period). Even with a standard 25 year mortgage it would have been something like 46% higher than my current rent. I’m in Waterloo too, and I tried to run the numbers about 6 months ago when I was moving from a shared house to an apartment on my own. I was seeing a lot of very crappy apartments for $800+ a month and wanted to see if purchasing a condo made sense. Even if I plowed all of my available savings + emergency fund into a down payment I’d be spending way more on mortgage+fees than on rent. Fortunately I found a good condo for rent, and I think I’m way ahead renting and putting the rest into my TFSA. I don’t see how it makes financial sense to purchase in Waterloo at the current price:rent ratio; at least for condos. ---
**Author:** ![Malthus](https://avatars.discourse-cdn.com/v4/letter/m/85f322/32.png) [@Malthus](https://boards.straightdope.com/u/Malthus)\ **Post date:** [December 16, 2010, 9:15pm UTC](https://boards.straightdope.com/t/canadians-carrying-148-household-debt-load-less-smugness-coming-up/564068/55 "2010-12-16T21:15:37Z")
> [@The\_Lurker\_Above](#): > > I’m in Waterloo too, and I tried to run the numbers about 6 months ago when I was moving from a shared house to an apartment on my own. I was seeing a lot of very crappy apartments for $800+ a month and wanted to see if purchasing a condo made sense. Even if I plowed all of my available savings + emergency fund into a down payment I’d be spending way more on mortgage+fees than on rent. > > Fortunately I found a good condo for rent, and I think I’m way ahead renting and putting the rest into my TFSA. I don’t see how it makes financial sense to purchase in Waterloo at the current price:rent ratio; at least for condos. I’m not sure the correct formula is mortgage + fees = rent. There has to be at least _some_ allowance for the fact that a percentage of your mortgage is actually being converted into equity. Equity, as I’m sure Mr. Turner would be the first to point out, is not an ideal investment. It is illiquid, for one, and its value does not increase historically as fast as other investments. But it still ought to be considered as part of the formula. ---
**Author:** ![The\_Lurker\_Above](https://avatars.discourse-cdn.com/v4/letter/t/dc4da7/32.png) [@The\_Lurker\_Above](https://boards.straightdope.com/u/The_Lurker_Above)\ **Post date:** [December 16, 2010, 9:50pm UTC](https://boards.straightdope.com/t/canadians-carrying-148-household-debt-load-less-smugness-coming-up/564068/56 "2010-12-16T21:50:48Z")
> [@Malthus](#): > > I’m not sure the correct formula is mortgage + fees = rent. There has to be at least _some_ allowance for the fact that a percentage of your mortgage is actually being converted into equity. Oh sure, but I didn’t include any maintenance or taxes either. Ideally, from a landlords pov, rent should cover mortgage, taxes, fees, maintenance + profit. If rent = mortgage + fees only will your growing equity cover the additional amounts spent on property taxes and maintenance? Not to go into too much personal financial details, but using an identical unit that recently sold in my complex at 20% down and 30 year amortization the mortgage+condo fees is just barely more than my rent. Go with a more traditional 25 year amortization, higher interest rates, or lower deposit and things look even worse. [Previous page](https://boards.straightdope.com/t/canadians-carrying-148-household-debt-load-less-smugness-coming-up/564068.md?page=2)