Canada's addiction to housing debt in 11 charts

Our addiction to housing debt in 11 charts

Is there a Canadian housing bubble? Judge for yourself.

Nathan Denette/The Canadian Press

Nathan Denette/The Canadian Press

The state of Canadian housing market is an endless source of debate. Maclean’s has engaged in its fair share of speculation about whether a housing bubble exists and, if so, when it might pop.

But while pundits might not be able to predict a housing bubble, it’s impossible to ignore that housing has become an important share of the Canadian economy in recent years. Homeowners are spending more of their hard-earned money on their homes — from mortgage payments, to home renovations. Housing has also become an increasingly important source of bank profits and financial institutions have been finding novel new ways to make sure those mortgage loans keep flowing.

Here are 11 charts that show just how addicted we’ve become to housing debt:


Household net worth has been on the rise thanks in large part to rising home values. Home equity has doubled in the past decade, but it has risen far more slowly :

Home equity

Household debt has risen much faster than personal disposable income (PDI), a measure of after-tax income. Household debt is up nearly 400 per cent since 1990, while income is up 153 per cent:

Debt and PDIBut thanks to historically low interest rates we’re spending less than ever on debt payments. Last year, the household debt-service ratio fell to the lowest ever recorded:

Debt service ratioWhatever we’ve saved in interest, however, we’re spending on home renovations:

Renovation spending (adjusted for inflation)[3]

Overall, owning a home is getting less affordable for many Canadians. Homeowners whose mortgages are insured now spend roughly 45 per cent of their pre-tax income on housing-related costs like mortgage payments, property taxes and heating. That would rise to 52 per cent if interest rates rose just two percentage points:


House prices have still been rising faster than mortgage debt, but that gap is narrowing:
Residential mortgage credit


Now onto the banks. They are more reliant on mortgages and home loans than ever before:


Mortgage-backed securities, where financial institutions pool mortgages and then sell them to investors, have been around for decades in Canada. But only recently have they become a major source of funding for the banks:


Historically, most mortgages in Canada were funded through bank deposits. In 1995, just five per cent of all mortgages were securitized. By 2006 the figure was around 16 per cent. It’s grown to more than a third of mortgages today:

The proportion of mortgagesMore than half of all mortgages are guaranteed by the Canada Mortgage and Housing Corporation (CMHC), meaning the government has promised to pay banks and investors if homeowners default:


Securitized mortgages (listed below as “NHA MBS” and shown in yellow) have become an increasingly important part of Canada’s shadow banking sector, which itself has been growing. Shadow banking refers to activities outside of the financial sector’s traditional role of taking deposits and making loans:
shadow banking[2]

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Our addiction to housing debt in 11 charts

  1. Anyone buying mortgage funds, bonds and other debt like GIC/CDs is losing value. We have a economical ponzi debt fraud scheme going on and its going to crash someday. I don’t know when but it will.

    With borrowing rates well below real inflation, a sure sign of economics in old school economics, we have created a debt bubble that will in time ruin Canada’s economic viability just it it has for Argentina, Iceland and others.

    Ottawa has clearly decided to devalue money, devalue incomes, devalue pensions to preserve the illusion that this new fraud banking will work. But in fact, it is already failing but much of media and all of politics is in full fledged denial of reality.

    Its why I now invest offshore. If a Canadian investment doesn’t yield above real inflation plus taxes, I sell and move the money out of Canada’s failing currency. These economic idiots might thing they can run Canada on virtual fraud money for more debt are dreaming, the music is going to end someday.

    If I was young, I would become a massive debtor. Mortgage and debt up as much as I can, as if hyper-inflation does devalue debt, you win as 10% home price growth with a 3% mortgage is a 7% winner. If the market crashes, you will have lots of company. If educated, skip out on the debt and leave Canada as not much jobs will be left anyways.

    At some point this debt will economically implode Canada. Its like musical chairs, just get out before the music stops and let the corrupted bank/governemtn system eat it. As the reality is, since 2006 the monitary system has screwed itself, they don’t pay interest to savers as the future value of CAD money is headed towards zero. And we will see a burst of hyper-stagflation so keep your cash flows healthy.

    Rough times ahead. Which reminds me to ship more money into USD and abroad. Time to sell off non-performers that can’t keep up with real inflation+taxes.

  2. Its nuts to lend money below infation+taxes to banks. Surprised so many don’t see the value losses.

    Say I lent $1000 last year, get a 1% return after MER or less. Today, I need $1060 to buy the same stuff but only have $1006 after paying taxes on $10 of interest. I lost $52 in purchasing power!!!! That negative value investing. Gets worse when you factor in a 10 cent from par devaluation of money in the last year, as it amplieies the losses, as $1000 CAD is now only $900 USD, so in fact you really lost $152 in value by lending money.

    Its also why RRSPs, pensions are asking for more and paying out less. CPP only gave poverty disabled and retirees a 0.9% raise while collecting much more from workers. Its the art of deceptions, get your money then screw you over with devalued money on the payout.

    I am pretty sure its too later to stop the pending economic turmoil. Survivors in 1980 were the ones with conservative cash flow positions in high skilled in demand jobs, not going to be much different than this pending mess when it unwinds, as Canada is in all respects, bankrupt and running ona statism prayer.