Everybody Wants To Talk About DEBT!


8 minute read

March 18, 2019

Was last week March Break?

I barely noticed.

Sure, the real estate market was slow, and that always happens this time of year.  But if you had told me that it was actually “Debt Week,” I might have believed you.

When I sat down on Friday afternoon to read all the articles I had bookmarked during the week, I noticed a common theme.  Aside from SNC Lavalin, which is actually boring the pants off me right now, I noticed that there were a solid five or six articles about debt.

Consumer debt, mortgage debt, worldwide debt, and the debt that finances real estate construction – all appeared in front-page stories in the major newspapers.

There are so many directions in which we could take today’s conversation, especially with the Federal budget being announced this week, so let me feed you a few links from last week (all of which you should read!) and provide my comments as well as the takeaways.

From the Huffington Post on Friday, March 15th:

“Total Debt Worldwide Hits $240 Trillion And The Bank Of Canada Is Worried”

A number like $240 Trillion is eye-catching, and yet I think this headline would have been lost on most casual readers.

Sure, the number is big.  But it’s so big that it almost seems out-of-touch with the average reader, who is more concerned with the $25 charge on their Rogers bill that they don’t understand.  I really fail to believe that 90% of the population could care at all whether worldwide debt is $240 Trillion or $240 Million.  Many don’t understand the difference, but even those that do likely just aren’t interested.

I mean, how does that number affect you?

You being anybody from the 21-year-old who just finished school and is trying to decide whether to get a job at ABC Corp riding a desk all day, or try your hand at becoming an “Influencer” on social media, to a 46-year-old, middle-class parent of two, to a 72-year-old retiree bouncing back and forth between Florida and the GTA every few months.

Pardon my cynicism this early on a Monday morning, but while the regular TRB reader both understands and cares about that headline, most people do not.  And perhaps that is part of the reason why worldwide debt is at an all-time high?

Very few people out there could actually sit down and hold an intellectual conversation about where the world could or will be in two, five, or ten years if this continues, and/or if the same countries continue borrowing, and the same countries continue lending.

Does the guy living in the proverbial trailer-park in Alabama really understand the $22 Trillion national debt?  If you told him that countries like China & Japan partially own the mighty United States, don’t you think he would just stereotypically kick back another Budweiser and yell Merica?

Does the 20-year-old at Ryerson University have any interest in fiscal and monetary policy?  Do they even teach that in school anymore?  I know, I know – tell me once again that I’m out of touch, but I’ll gladly take that as a compliment if we’re somehow rewarding and applauding the 27-year-old downtown condo-dweller for taking 42 photos of his salad to get the “right one” for Instagram, rather than reading…………………a book.

Yeah, that made me sound old alright.

But my point is that part of the reason that worldwide debt is so high is because of two things that we will never change:

1) People don’t understand.
2) People don’t care.

On a worldwide basis, people don’t care.  Why does worldwide debt interest the average Canadian?  It doesn’t.

On an individual basis, many people still don’t care.  Should the 27-year-old condo dweller spend $1,200 on his VISA for bottle service at a nightclub on Saturday night?  The answer doesn’t matter, because he’s going to.  He’ll simply “deal with it.”

That’s my rant.

Now for the most notable portion of the Huffington Post article:

Canada’s high household debt, which is now more than 178 per cent of disposable income, is the central bank’s top domestic financial vulnerability, she said.

“The good news for Canadian businesses and households is that the financial system — globally and here at home — is safer than it was a decade ago thanks to much stronger safeguards,” she said.

Wilkins added it’s important for policy-makers around the world to continue efforts to conduct stress tests on different parts of the financial system, and, when necessary, put in safeguards.

Say what you want about Canadian real estate, the CMHC, interest rates, borrowing, and the like, but let’s not ever lose sight of the fact that our banking system is one of the safest in the world, and that’s partially due to all of the changes implemented after we watched the sub-prime mortgage crisis play out in the United States in 2008…

From the CBC.ca on Thursday, March 14th:

“Statistics Canada Says Household Debt Grew Faster Than Income In Fourth Quarter”

Let me sound like an old man again and say, “I remember.”

I remember when the ratio of household debt to income topped 120%.

I remember when it topped 130%.

By the time it topped 140%, it was clear that things weren’t going to change.

It topped 150% back around 2008.

I barely noticed when it topped 160%.

Hovering in the 160’s, I started to round up and say “About 170%.”

And last week, a report came out that noted household debt in Canada rose from 178.3% in the 3rd quarter of 2018 to 178.5% in the 4th quarter.  I mean, that’s basically 179%, which is basically 180%.

So there we are!  A new threshold!

From the article:

On a seasonally adjusted basis, Statistics Canada said households borrowed $21.2 billion in the fourth quarter as mortgage loan demand rose $2.3 billion to $12.3 billion.

However, despite the increase in the fourth quarter, on an annual basis, household credit market borrowing fell 19.5 per cent to $84.6 billion in 2018, the lowest level of borrowing since 2014.

Credit market debt, which includes consumer credit and mortgage and non-mortgage loans, totalled nearly $2.21 trillion in the fourth quarter.

Mortgage debt reached nearly $1.44 trillion, while consumer credit and non-mortgage loans combined to total $769.4 billion.

The bears should have a field day with this one…

From the Financial Post  on Thursday, March 14th:

“Consumer Debt Stabilizing, But Canadian Banks Face ‘Significant’ Risk If Economy Goes South, Moody’s Warns”

Here’s a different media outlet’s interpretation of the debt-to-income ratios announced last week, with this Financial Post article concluding that the debt to income ratio had “levelled off.”

Of course, they also noted that the amount borrowed and the way it’s borrowed is concerning.

Interesting from this article was a note about auto loans; something I had yet to hear about until now:

There are also signs that some consumers, facing higher mortgage costs, are agreeing to “longer term manufacturer-subsidized auto loans” with lower payments.

“As vehicles depreciate each year, longer-term loans result in higher rates of ‘negative equity’ where the value of the vehicle is less than the amount of loan principal,” the report says.

This article mentioned that the share of the “Big Six” banks had fallen, with one particular bank’s share increasing at a notable rate:

The Canadian arm of HSBC Holdings Plc, have managed to grow their share of the mortgage market to 6.4 per cent in 2018 from 5.4 per cent in 2016.

From the Globe & Mail on Thursday, March 14th:

“Many Canadians Say They’ll Have To Tap RRSP’s, Take Second Mortgages, Sell Assets As Debt Burden Rises”

I spent $120 on chicken on Saturday for no apparent reason.

I went to Loblaws to pick up strawberries, milk, and eggs, as per my wife’s request, but I noticed that chicken was on an insane sale; something like $7/KG.  That’s basically $10 for a pack with five massive chicken breasts, which, if you’re picking up on the way home from work one day at any grocery store is likely going to be priced around $22.

So I picked up $120 worth, took it home, put six chicken breasts in each Ziploc bag, and placed them in my freezer like it were a file cabinet for meat.  My wife makes me dinner on Monday night with enough for Tuesday, and on Wednesday night with enough for Thursday, every week, and chicken is a staple of that diet.  This cost savings was a no brainer, as was the eight minutes it took for me to shuffle the meat into my freezer.

I have had both friends and family call me “cheap” before, but I think it’s the very definition of frugality.

As 2019 rolls on, I wonder more and more if financial accountability, ie. one’s personal responsibility for his or her own financial situation, has completely fallen off in the last half-decade.  Too many parents are buying their children $300 hockey sticks when the kids would do just fine with $30 versions.  Too many cleaning ladies feel as though they need the new iPhone.

Sorry if that sounds rude, but I’ve always felt that truth and common sense should trump sensitivity and potential to be offended, although I don’t know if that plays well in today’s society.

I sell real estate for a living, so call me biased when I think that buying a home for you or your family is more important, and a better investment, than consumables.  Expensive dinners, brand-name clothing, and sporting/music events – most of which people can’t afford.

Every time I check Instagram I see that so-and-so is out at the Leafs game, or down in Punta Cana, or out at some la-de-da restaurant that will be the envy of everybody in the know.

OF COURSE Canadians are taking second mortgages, selling assets, and tapping into RRSP’s.  Nobody saves anymore!  Nobody thinks about money or the future, or has a financial plan.

Sidebar here, but Rob Carrick wrote a brilliant article last week called, “It’s Time To Stop Pretending RRSP’s Are A Universal Retirement Savings”

You won’t believe this, or, perhaps you will…

Statistics Canada numbers show RRSP contributions grew by 2.6 per cent annually to $40.4-billion between 2005 and 2016, the most recent year for which there is data. This isn’t a mind-blowing number, but it’s much ahead of the average 1.7-per-cent inflation rate for that period.

The census of who’s actually contributing this money is where you see the real story in RRSP contribution patterns:people aged 25 to 34 fell to 11 per cent of contributors in 2016 from 14 per cent in 2005;

35- to 44-year-olds fell to 19 per cent from 26 per cent;
45- to 54-year-olds fell to 28 per cent from 32 per cent;
55- to 64-year-olds surged to 31 per cent from 23 per cent;
people 65 or older jumped to 9 per cent from 4 per cent.

From Better Dwelling on Monday, March 11th:

“Canadian Real Estate Developer Debt Hits An All Time High”

Have you ever wondered how these condominium projects are built?

I’m sure the naive and/or uninterested folks out there simply assume that some “billionaire” buys a plot of land and constructs a condo, all while eating caviar on a yacht.  But most of the readers know that the banks finance these projects, and much of the time, the builders don’t have a whole lot of skin in the game.

Of course, it’s also possible that developments could be financed by syndicated mortgages, but we found out last December that Fortress Developments was a sham all along.

This article from Better Dwelling puts accurate numbers to the speculative nature of real estate financing in Canada.  This is really great stuff:

Canadian real estate developers are pushing their debt capacity to new highs. Bank of Canada (BoC) numbers show developers racked up a new record high at for credit at chartered banks in Q4 2018. Debt levels for developers are almost three-quarters higher than previous peaks.

Canadian real estate developers have borrowed a new all-time record. The balance of loans at chartered banks reached $16.68 billion in Q4 2018, up 2.36% from the quarter prior. This represents a massive 20.28% climb when compared to the same month last year. The previous record was a quarter before, which topped the Q4 2016 high.

Later in the article, we’re told in massive bold text: “Canadian developers borrowed over 70% more to fund this boom”

To appreciate how much money developers borrowed from banks, you need to look at past peaks. The 2008 peak was only 1.11% larger than the peak reached in the previous building boom in 1992. It wasn’t until 2013 when the current trend breached that level for good. In the most recent quarter of Q4 2018, we’re 72.3% higher than 2013 levels. It’s a lot of leverage for the peak cycle this time around.

Well, that’s a lot of reading for a Monday, if you take my advice and bookmark those links.

It’s also a lot of cynicism, but I can’t help it.

You regular TRB readers are far smarter than the average bear (in the Yogi sense, not financial market sense), and maybe you’re nicer, quieter, and humbler than me, but I really do think that most of society out there today has a “YOLO” mentality, and they’re busy living today with very little regard for tomorrow.

Financial literacy was a huge topic on this blog in 2018, and it will continue to be as we move forward.

So much of the debt out there today is unnecessary.

But does that even matter in the context of conversations about debt-to-income, interest rates, the real estate market, et al?

Have we actually surpassed the time to discuss financial accountability?  Is that how far we’ve come?

Written By David Fleming

David Fleming is the author of Toronto Realty Blog, founded in 2007. He combined his passion for writing and real estate to create a space for honest information and two-way communication in a complex and dynamic market. David is a licensed Broker and the Broker of Record for Bosley – Toronto Realty Group

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  1. Peter

    at 9:04 am

    David , you definitely sound a little like an old man. But I am an old man, so allow me to give you my thoughts on the matter.

    It seems as though every generation wants to be less and less like their parents before them. The current stock of 20 to 30-year-olds watched their parents scrimp and save, and never get ahead. It looks like they are going to take the opposite approach, and simply live life at the moment.

    The TFSA made the RRSP redundant for many young people, and a lot of these kids simply thought of the RRSP as forced savings for a home to begin with.

    This generation is constantly being told that CPP will have been drained by the time they retire, so what is the point in playing the game if the rules are altered along the way? These kids are constantly being told that the biggest failsafe they’ve got isn’t safe, and is going to fail.

    Fortune favours the bold. So it looks as though many of these youngsters are using their money to take risks, rather than save for a time down the road that they can’t even comprehend.

    We also have a government that consistently bails people out. The upcoming budget this week will deliver more freebies, which once again underscores the government’s role as a giver, rather than an overseer. If you were a 20 something-year-old today, how would you view the role of government?

    It’s no wonder debt is at an all time high. Spend now, and worry, never.

    1. Carl

      at 11:22 am

      “This generation is constantly being told that CPP will have been drained by the time they retire.”
      I must have missed that. Who is saying that, other than internet trolls?

      1. Chris

        at 11:35 am

        It’s not an uncommon sentiment, but it doesn’t seem to be particularly well founded:

        ““There’s still this myth that’s circulating that the Canada Pension Plan won’t be there when you retire,” said the CEO of the CPP Investment Board, the largest pension fund in the country that manages a $328-billion investment portfolio on behalf of 20 million Canadian workers and retirees.

        “You ask the average person — stop anyone on the street — and they’ll say the CPP won’t be there . . . . It’s amazing,” Machin said.

        The chief actuary of Canada regularly reviews the financial state of the fund and measures its sustainability, and last year estimated the fund is sustainable for 75 years — until 2091 — with an average rate of return of 3.9 per cent.

        The CPPIB says its 10-year annual rate of return after accounting for expenses and inflation was 5.2 per cent, and was 10.5 per cent over each of the last five years — well above the threshold set by the chief actuary.”


        1. Condodweller

          at 3:47 pm

          I have heard this myth often as well. The issue is not if it’s going to be available but how much more millennials are going to have to pay into it for more or less the same benefit than boomers for instance. The ratio of CPP contributors vs recipients is going to change dramatically over the next decades. Then there is the question of earnings power after inflation which is difficult to predict. Ask a pensioner how much their CPP/OAS payment is increasing on a regular basis.

          1. Carl

            at 7:22 pm

            Answers are on the Government of Canada web site. CPP and OAS payments increase with inflation, as measured by CPI from Statistics Canada.

  2. Chris

    at 9:06 am

    “This article from Better Dwelling puts accurate numbers to the speculative nature of real estate financing in Canada. This is really great stuff” – David

    “I would put zero stick into anything Bitter Dwelling has to say. They’re business model is taking a stat and manufacturing some BS story around it to get clicks from the bitter bear crowd.” – Kyle


    1. Robert

      at 10:30 am

      The absolute number of total debt is just one side of the story. Comparing this number let’s say to debt in 1980-1990 when interest rates were 12% has no meaning. To do proper analysis interest rates need to be part of equation, because interest rates determine how much it costs to carry debt. Debt is very cheap today and thus everyone jumping on it.
      The only way to teach people is to raise rates. But government(s) won’t do it (in significant way) because noone is interested in crash.

      1. Chris

        at 11:31 am

        Agreed, debt is only one part of the equation, that’s why I brought up Debt Service Ratio in my other comment.

        DSR in the USA is at historic lows:


        Meanwhile, Canada’s DSR is at a record high.

        This will give the FOMC more breathing-room to raise rates further, if the economy continues to warrant it. The BoC, not so much. Though, if the USA keeps raising rates and we hold pat, the Canadian dollar will suffer.

        1. Condodweller

          at 3:52 pm

          with record high debt loads it’s no surprise we have DSRs. The most important indicator of financial health is net worth. With increasing house prices net worth has kept pace with debt, the trouble comes when house price increases slow down or stall altogether. The trouble comes when it starts decreasing…

          1. Carl

            at 7:41 pm

            Having high net worth is great, but it gets you only so far if you cannot or don’t want to sell your assets. To service your debt you need cash. You can use your assets to get more loans to service the existing loans, thus further increasing your DSR. And then repeat …

          2. Edward Der

            at 10:59 pm

            Hi All,

            It’s a bit more challenging now for those who want to keep the existing housing asset in order to refinance to get a larger HELOC so that you can acquire another asset.

            This strategy was the golden goose back in the heyday.

            However, one should not be ashamed of holding on to a housing asset as long as the total monthly cash outlays (including P&I) are being offset by the rental income.

            The ways that rents are increasing with such fervour, cash flow is something that should no longer be looked at as the ugly sister to capital gains.

            Cash flow is king…especially in the short term.


          3. Condodweller

            at 4:05 pm

            No, but it is a shame when one has to sell an asset, I’m talking about RE here, because he/she has racked up so much debt against it that they can’t meet their minimum payment.

  3. Chris

    at 9:35 am

    The CBC article touched on one aspect that doesn’t always get focused on:

    “Josh Nye, senior economist at Royal Bank…noted the debt service ratio increased for a fifth consecutive quarter and matched a record-high.

    The household debt service ratio, the total obligated payments of principal and interest on credit market debt as a proportion of household disposable income, increased to 14.9 per cent in the quarter compared with revised reading of 14.7 per cent in the third quarter.

    “While we expect the BoC won’t be raising rates again until later this year, the DSR is still likely to edge higher in the coming quarters as homeowners renew fixed rate loans at higher interest rate,” Nye wrote.”

    It’s one thing for debt to be increasing as interest rates fall; DSR can remain steady or even decline. But now, households have amassed huge debt burdens, interest rates have increased ever-so-slightly, and DSR has climbed to match a record high. At least the interest-only DSR is still relatively low, I guess.

  4. Another David

    at 4:24 pm

    $7 per kg for chicken? That’s so expensive!

    Nofrill’s are selling chicken breast this week at $2 per pound ($4.4 per kg), yet you call yourself frugal?
    Joking, love your articles, keep up writing!

    1. David Fleming

      at 3:50 pm

      @ Another David

      We’re talking boneless skinless here?

      Boneless skinless is the gold standard of chicken. Not pre-frozen either. I learned this while working in the meat department at Bruno’s Fine Foods in the summer of 1995.

      I needed a break, so spent eight minutes on this………..


      You’re talking about split chicken breast. $4.41/KG, or $2.00/LB. Clearly not the same thing!

      Please don’t tell my clients I just spent time on this…

  5. Jimbo

    at 4:57 pm

    About 12 years ago I had two close friends buy real estate. One in Markham and the other in Oshawa. Both were given between $50,000 and $100,000 from their father and grandmother respectively (It was cash and not equity from a house). I couldn’t understand how they could just throw that money into a house…. both of their answers were the same. Why would i hold onto that money when interest rates are below inflation, I would basically be losing money every day. Both had mediocre jobs and hadn’t broken into their field after University. Fast fwd 8 years one got divorced and lives in a house that is completely paid off in Peterborough and the other sold and moved just outside Peterborough with a small mortgage. Neither got a job in their field and they actually make less than $26 an hour.
    It still blows my mind that they are as successful as they are and I am really happy for them. It goes to show there are many ways to live life. I thought they were complete idiots but given they make very little having an investment of $100,000 $250,000 wouldn’t make sense for them at this point in their life and they can live pretty stress free with low paying jobs…. I don’t think you could dream of funding your retirement investment and rent off at $25 an hour.
    That being said when they had their mortgages they were struggling and couldn’t afford to do anything other than stay in. It was the sacrifice they were willing to make.

    As long as everyone doesn’t go to the same side of the boat I think we will be okay as a country…… when barbers, part time janitors and seasonal workers start getting mortgages for a house I will start to take cover but I don’t think this would happen in Canada.
    As for the retirement savings I don’t know how my generation is going to survive day to day after their 70th birthday (2050 and beyond). CPP and OAS will still be there but $1,600 a month is not much to live on today and if that amount doesn’t rise with inflation I don’t know what everyone will do.
    Until we start to teach how to calculate an annuity payment or learn what a present value calculation accomplishes we are hooped. Till this day we have relied on a growing population to fund our benefits, that is reversing course and soon we will be the larger population drawing all benefits the cuts will be hard.
    I have a DB pension plan in my future, it is hard to believe how many sharks are out there trying to convince people to trade that in for a LIRA with the guise that you can transfer the whole value to living relatives after you die/you get full control. Old boss was given the option of $640,000 commuted value or $45,000 a year for the rest of your life that is automatically indexed with inflation at 55, he was 40. He almost signed on. To me that only makes sense if you are 65 and work for a company outside of government…. it just goes to show how little we understand about how to plan for the future.
    I still invest outside my DB, I just keep it out of an RRSP and transfer the maximum amount to my TFSA each year. Most won’t do that with a DB, but for me funding future family is important.

    As for the chicken check Walmart, I pay $10 in Halifax for 6 pieces of chicken vs $20-$25 at the grocery……….

    1. Carl

      at 7:16 pm

      Actually, the CPP and OAS amounts do rise with inflation. More precisely, with the official CPI. You can argue that CPI does not measure the “real” inflation, but that’s another discussion.

      The viability of CPP is not a problem. As was pointed out by Chris, it is well funded at least for another 75 years, which means essentially forever. But what people should understand is that CPP was not designed to provide full retirement income. It covers only one quarter of pre-retirement wages, to rise to one third with the latest changes.

      1. Jimbo

        at 8:48 pm

        How confident are you that it will always rise with inflation? I’m not going to disagree with you, but I wonder what happens when those drawing from cop is above 35% of the population?

        The DB I am paying into has a growth rate of 5.5% over the last 12 years. My pay in has almost doubled to $700 a month as they adjusted for lower growth (2-3% a year) and to better balance what the tax payer pays into it.
        I believe CPP is at 5% or better. I read that they moved it from bond market to growth stuff after hiring a lot of “workers” the article was an attack.

        1. Carl

          at 9:28 pm

          I am as confident as I can be, because the sustainability of CPP was evaluated by those whose job it is to evaluate such things, taking into consideration demographics, estimates of economic growth, etc. They are much better qualified to do that than I am, or just about any of us.

          Of course they may be wrong, because nobody can predict future with certainty. Financial planning is based on many assumptions. Compared to all the other assumptions we have to make, about our health, our families, our jobs, our investments, etc, the assumption that CPP will be there for all of us living today is pretty safe.

    2. Condodweller

      at 12:20 am

      “I have a DB pension plan in my future, it is hard to believe how many sharks are out there trying to convince people to trade that in for a LIRA with the guise that you can transfer the whole value to living relatives after you die/you get full control. ”

      The question of whether or not to commute a pension is a complex problem. There can be circumstances under which it makes sense to do it. You just have to hire a competent and trustworthy advisor to do the calculation and provide an unbiased recommendation.

  6. Libertarian

    at 10:35 am

    Good rants David.

    The 27-year-old taking pictures of his salad and buying $1,200 bottle service can do so because his parents bought his condo for him. Older generations won the lottery with real estate and are now using that money to spoil their kids. On the one hand, I can understand parents (and a lot of commenters on this blog) think that home ownership is the secret to financial wealth, but on other hand, spoiling their kids doesn’t teach the kid financial literacy.

    Good call on stocking up on the chicken when it’s on sale. I tell people all the time to buy a lot of an item they use everyday when it’s on sale. That way, when you run out, it’ll likely be on sale again. A person can really stretch a dollar if they do this repeatedly year after year.

    But as “Another David” pointed out, chicken is cheaper at No Frills. My wife and I always debate whether it’s the same chicken at both stores since Loblaws owns No Frills. She doesn’t think so, so we bought it from Loblaws.

  7. Appraiser

    at 11:04 am

    Debt is only one side of the balance sheet. Let’s not forget about assets.

    Total debt is up in part because there are more people that own multiple properties, in addition to their principle residence. Multiple properties that provide cash flow to service the debt.

    Real estate investors (self included) that own multiple properties have much more debt than joe average, however most investors who have taken advantage of the real estate boom in the GTA over the past 5 years or longer, are cash flow positive with rental income and capital gains positive by a long shot. Most are servicing their debt with ease.

    And rents continue to rise.

    Debt service ratios are based on averages. And yes, joe average is feeling the pinch.

    1. Derek

      at 1:31 pm

      I know I definitely want you on the file to appraise any house we want to buy down the road.

      1. Appraiser

        at 7:02 pm


  8. Batalha

    at 5:13 pm

    My wife and I are both in our mid-60’s and retired several years ago. We began seriously saving/investing in the early 1990’s and one of the golden rules at that time (especially among financial advisers) was that you absolutely should not count on either CPP or OAS to “be there” when you retired. Not to say that the next 25 years will be the same as the last 25 years, but “plus ca change” and all that.

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