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Household Debt Could put Canada "In Trouble"

Updated: Sep 7, 2022

Advisor says personal leverage higher in Canada than it was in the US in 2007


Canada’s levels of household debt could have major consequences if interest rates rise.

Arthur Salzer, CEO and CIO or Northland Wealth Management, said more hikes would put the country “in trouble” and leave its residents to face the consequences.

On Friday, a “secret” Federal analysis, prepared for Finance Minister Bill Morneau, was accessed by The Canadian Press under the Access to Information Act.


It revealed that the household-debt-to-disposable-income ratio has been steadily rising since 1990, when it was 90%, which translates to 90 cents in debt for every dollar of household disposable income. The latest figures showed the ratio hit 170.4% in the final three months of 2017, just over $1.70 in debt for every dollar.

The memo, written last August, admitted there was no way of knowing whether the current ratio was too high and the Bank of Canada, which has raised its benchmark rate three times since last summer, now has a potentially delicate balancing act to perform to keep inflation under control. “If rates go up, we are in trouble,” Salzer said:


“There is a ton of leverage on a personal level in the system, much higher per person than there was in the US in 2007. And should rates spike, and I think the Bank of Canada knows this and most levels of government understand this, there will be difficulty servicing that debt and there are consequences from it.”

On the positive side, bullish sentiment reflects the still low level of interest rates and the strong growth in the US, said Salzer, who believes the Bank of Canada will have to keep hiking before investors change their mood.

He said: “It will take some major increases in interest rates to take the [bullish sentiment] away. We’re getting some very strong policies that help US-centric growth currently, we see a lot of job hiring and we’re seeing a lot of wage inflation starting to happen in the US. It’s mild but it’s starting to happen.


“Plus, we’re two years into probably the lowest interest rates we will ever see in our lifetime and if rates go through three [years], and it looks like they will, it’s onwards and upwards.

“It’s good because it’s a growing economy, it’s good because there is job growth and the income disparity is starting to lessen as people do better, which is a very good thing.

“It may not be as good for US bucks because of that, or US real estate. When we’re investing, we are using higher cap rates when we go to buy US real estate or if we go to buy private equity or public markets. We are being more careful than we’ve been for a while.”


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