Gas Goes Down, Debt Goes Up
Apparently you can’t win. Gas prices go down, saving consumers money, but then the commodity-based Canadian economy is hurt by the shortfall in oil revenues, shown in the dropping loonie. You’ll have more money to spend on you next trip to Buffalo but it won’t go as far as before.
While less costly fill-ups are leaving us with more cash, it’s not staying in our pockets as Canadians take on unprecedented levels of debt.
According to a Financial Post article, the loss of oil revenues will hurt the housing market, which already saddled with “near-record levels of household leverage. . . . Canada’s ratio of household debt to disposable income rose to a record 162.6% between July and September, according to data released last month. Benchmark interest rates of 1% have fanned a house-buying frenzy that sent 2014 sales up 6.7% in Toronto and 16% in Vancouver.”
Then a Globe and Mail article points out: “Oil prices may be crashing and sparking fears of an economic downturn, but Canadian households continue to have few qualms about piling on debt. . . . Household credit grew by an annualized rate of 4.5% in November, a two-year high and the second month of strong gains, to top $1.8-trillion.”
Residential mortgage debt had the biggest jump, leaping 5.2% in November from the same month a year before. Other forms of credit, including credit cards, lines of credit and loans, grew by 3%.
Canadians have been able to service their high debt levels because of relatively low interest rates. But if the country’s unstable economic conditions lead to a spike in interest rates, then the load might become unbearable for many, leading to bankruptcies and other credit problems.
If you have any doubts about your own situation call Richard Killen & Associates and we’ll set up a free consultation to assess everything and review all your options. It is usually a good idea to get ahead of any potential problems that may lie just over the horizon.