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Top Stories of the Week – 254,000 Mortgages Remain on Deferral; Canadian Household Debt Exceeds GDP Significantly

 

Canada’s Total Household Debt Exceeds 115% of GDP – Why Is That Bad?

The total value of Canada’s household debt has risen significantly, with GDP figures falling off a clip over the last few months. Q2 2020 saw this ratio hit 115%, up from the 101% that was recorded in the previous financial quarter. The number was worrisome even before the pandemic broke out. Researchers say that quick spikes in this ratio are usually followed by economic slowdowns during the succeeding years. New debt has a pull-forward effect on consumption levels, which results in bad times for the economy in the future.

 

254,000 Mortgages Are Still on Deferral

While most Canadians who opted for deferrals on their mortgage payments have returned to their regular payment schedule, around 5.97% or 254,000 mortgages are yet to be back. More than 795,000 mortgages were placed on a payment deferral scheme when the pandemic was at its worst – around 16% of these mortgages were owned by Canada’s biggest banks. Payment deferral schemes are unlikely to be terminated fully until April 2020.

 

Although Unemployment Figures Are Better In Canada’s Biggest Real Estate Markets, It’s Still Disturbingly High

While Canada’s biggest real estate markets may have seen a fall in employment figures, they are still experiencing a recession. Toronto’s unemployment rate was at 11.5% for the month of October, which was 1.3% points less compared to the previous month and 5.8% points higher compared to October 2019. Vancouver’s unemployment rate was at 9.7% for the month of October, which was 1.4% points less compared to the previous month and 4.7% points higher compared to October 2019. While both regions have improved significantly, they aren’t still out of the crisis yet.

 

Bank of Canada Terminates A Mortgage Program Infamous for Inflating Prices

The BoC terminated a pandemic program that purchased mortgage bonds from the market in October. However, they are still pumping liquidity into the economy. The balance hit $9.722B on November 11, around 1748% higher compared to last year. It’s also around $122M higher compared to the figure recorded in the 1st reporting period after this program was terminated. While the BoC continues to purchase bonds, it’s no longer as aggressive as it used to be. Rates are unlikely to increase any further, thanks to their actions.

 

Canadian Insolvency Figures on The Rise Despite Government Support Measures

Canada is experiencing a spike in insolvency filings despite the lifting of lockdown restrictions. Q3 2020 saw over 35535 insolvency claims being filed, an increase of 7.9% compared to the preceding quarter. However, the figure was 40% less compared to the same period in 2019, which can be attributed to the payment deferral programs and support measures enacted by the government. However, insolvency figures are rising steadily every quarter, despite support from lenders, which is a sign of trouble.

 

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