Aggregate household debt

Over the five years to 2025, aggregate Canadian household debt is anticipated to increase at an annualized rate of 1.2% to $2.5 trillion. During the five-year period, aggregate household debt is anticipated to exceed 110.0% of GDP in 2020 and sit just above 100.0% in 2023, based on the latest available data from the Federal Reserve Bank of St. Louis and IBISWorld estimates. Consequently, concerns are rising that domestic debt levels are unsustainable and may lead to issues if property values continue to expand.

In contrast to the United States, Canada's housing sector did not totally deleverage during the global financial crisis. Consequently, the household debt-to-disposable income ratio continued to rise consistently between 2011 and 2017, compared with declines in the United States in recent years. According to Statistics Canada, this ratio currently exceeds 180.0%, significantly higher than the levels experienced in the United States at the height of the property bubble. Low interest rates have continued to fuel mortgage lending in Canada, with Goldman Sachs suggesting that Canada ranks in the top five countries with respect to potential housing bubbles.

Yet, according to the Bank of Canada, Canada's mortgage market is significantly different from that of the United States. More specifically, mortgages in Canada are full recourse, indicating that Canadian lenders have rights to the other assets of debtors. In turn, this significantly decreases the incentive for households to default on their home loans and reduces the likelihood of a housing downturn on the scale experienced by the United States. Additionally, some argue that the value of assets has risen more quickly than that of debt, diminishing the actual risk that households experience. One important note to this line of reasoning is that not all assets can be liquidated, which adds another wrinkle to the assessment between assets and debt value.

Due to inflation, from the effects of the pandemic and rising interest rates, the aggregate household debt in Canada is forecast to continue rising. According to Jim Stanford, economist and director for the Centre for Future Work, the current debt level in Canada has the potential to spark a recession due to individuals electing to spend disposable income on debt instead of consumer goods. After aggressively raising rates in 2022, the Bank of Canada continued to raise rates during 2023, stressing debt levels further. During the year alone, aggregate household debt rose 4.8% in 2021, followed by steady declines in 2022 and 2023.

In 2024, the household debt service ratio, measured as total obligated payments of principal and interest on credit market debt as a proportion of household disposable income, fell. This indicates that debt payments have been sluggish. Consequently, aggregate household debt increased by over 3.0%. IBISWorld expects aggregate household debt to continue rising in 2025 as consumer spending, confidence and slowing wage growth fall.