Consumer debt on track to follow housing’s decline

February 6th, 2013


The Globe and Mail

Wednesday February 6, 2013

Byline: David Parkinson

In every province but one, Canadian consumers are continuing their debt party like it’s perpetually midnight on New Year’s Eve. Yet in British Columbia, it looks like the housing market has already crashed the party – and it’s a major buzz-kill.

A new quarterly report on Canadian consumer debt levels, from consumer credit-data provider TransUnion, tells a familiar tale: We’re at record levels, yet still climbing. Average debt increased in every province last year – except British Columbia.

There, debt levels fell 4.1 per cent in the fourth quarter compared with the third quarter – a huge number given that the final quarter of the year typically features a runup in consumer debts, due to holiday-season buying.

On the surface, B.C. looks like the last place to suddenly feel a compulsion to belt-tighten. Its economic growth last year was considerably above the national average, and slowed only slightly from the year before.

But the housing market in B.C. – especially Vancouver and the Lower Mainland, where the bulk of the province’s population lives – is a different story. While the Teranet-National Bank House Price Index rose 3.1 per cent nationally last year, its Vancouver component fell 2 per cent, the only major market in the country to turn show a decline.

A Bank of Canada study last month found that Canadians’ willingness to run up non-mortgage debts has historically been closely tied to the value of their homes. When house prices rise, so do non-mortgage consumer debts – and when they fall, those debts retreat.

During the housing boom that was particularly loud in the Lower Mainland, British Columbians ran up the highest debt levels in the country. Sustaining debts at those heights would have been difficult anyway; the downturn in house prices is a sure-fire catalyst for a deleveraging. Debt reduction should translate to a decline in B.C.’s consumer spending – a key contributor to GDP – as this plays out.

Furthermore, the Lower Mainland is hardly the only place in the country where a home-price retreat could send consumers into retrenchment – it’s only the first. Others may soon switch from party mode to dealing with their debt hangovers. Get out the Pepto-Bismol, Toronto and Calgary.


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