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Insights From A Top Canadian Economist: Part 2

Canadian economist Benjamin Tal’s presentation at the National Mortgage Brokers Conference was eye-opening. In it, he posited a holistic view of what’s happening with the Canadian economy and what we can expect to happen next. He’s rarely been wrong in the 20 years I’ve been following him – so I thought it was incredibly important to share his insights with you. 

Part 1 of this series dives into the forces he believes are impacting inflation. These include international economies as well as lasting effects from the pandemic. There’s one factor however that I believe is most responsible for our current economic climate and is worthy of a larger conversation: the labour market.

Continue reading “Insights From A Top Canadian Economist: Part 2”

Insights From A Top Canadian Economist: Part 1

Two weeks ago, I attended the National Mortgage Brokers Conference and had the pleasure of seeing one of the most trusted economists in the country speak: Benjamin Tal. Ben is the Deputy Chief Economist at CIBC. I’ve been following him for over 20 years, as have many Canadians, and for good reason; not only is he exceptionally skilled at simplifying complex concepts; he’s also exceptionally skilled at getting it right.

Continue reading “Insights From A Top Canadian Economist: Part 1”

Canadians Are Paying Down Their Non-Mortgage Debt

In so many ways, the pandemic has been devastating for Canadians. Between layoffs, supply-chain shortages, and healthcare challenges, the last year and a half has tested us in ways we never could have imagined a decade ago. And yet, in the midst of adversity, some silver lining has come to light: Canadians have actually been very smart with their money. 

We know that Canadians have never had more disposable income. Lockdowns physically limited our ability to shop and dine out while CERB payments padded our pockets for months. But people weren’t running out and buying Teslas. In fact, they were using their excess cash to pay down expensive debt

This happened almost immediately. Less than two months into the first lockdown, May 2020 saw the first decline in non-mortgage debt in decades. By January 2021, non-mortgage debt had plummeted by more than $20 billion, including a whopping decline of $16.6 billion in credit card debt. Now able to pay down their Visa bills, Canadians were able to incur more practical debt: mortgage debt.

Mortgage Debt in the Pandemic Era

As non-mortgage debt evaporated, mortgage debt ballooned. Almost $99.6 billion between the start of COVID and January 2021, to be exact. Why? Mortgage rates fell. The stock market soared. Extra disposable income made it a little easier to save for a down payment. But more than anything, the stay-at-home orders forced Canadians to really value their living spaces. 

The Bottom Line

Canadians are trading in their bad debt for good debt. What’s the difference? Bad debt is spent on inessential items that don’t retain or accrue value, while good debt can enhance your net worth over time. In my opinion, mortgage debt is good debt.

Real estate values in Canada have only increased over the last 25 years. So when you take out a loan on a home, you’ll almost certainly see a return. Having debt tied to a tangible asset that appreciates in value is prudent, whereas having debt tied to an overcharged Amex card is not. The trend towards good debt is an indication that Canadians are getting more savvy at managing their money. 

But it’s also a huge indication that Canadians value homeownership. You can even see it in how much they’re spending on home decor and renovations. With home values on the rise and rates remaining stable, it’s very likely that we’ll see mortgage debt climb even more than we already have.

Your best interest is my only interest. I reply to all questions and I welcome your comments. Like this article? Share with a friend.

Steve Garganis: 416-224-0114; steve@canadamortgagenews.ca