Canada now has the highest level of household debt among G7 nations, according to a new analysis published by Canada Mortgage and Housing Corp. (CMHC).
Canada’s housing agency said that the country's household debt level has risen substantially in recent years, leaving the country vulnerable to a global economic downturn or crisis.
Mortgages now comprise about three-quarters (75%) of household debt in Canada.
While household debt made up 80% of the Canadian economy during the 2008 recession, it rose to 95% in 2010 and exceeded the economy’s size in 2021.
By contrast, household debt in the neighbouring U.S. has declined from 100% of gross domestic product (GDP) in 2008 to 75% in 2021, according to CMHC.
Over the same period, household debt also dropped in the United Kingdom and Germany, and was unchanged in Italy.
The agency said high levels of debt can do significant damage when a recession or economic downturn hit, making it difficult for mortgage holders to pay back their debts.
CMHC also warned that it is seeing “warning signs” that more consumers are getting into financial trouble with their mortgages as the loans reset at higher interest rates.
A recent report from RBC Economics forecasts a recession and an unemployment rate of 6.6% by early 2024.
The RBC report warns that with Covid-19 government support measures now over and living costs on the rise, mortgage delinquencies could rise by more than a third from current levels.
CMHC is calling on governments across Canada to improve housing affordability.
