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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

Average inflation targeting… remember this term.

Last week, I participated in a webinar featuring Economist Dr. Peter Andersen.  While there was a lot of information covered, today I want to focus on a couple of key areas.  

  • What can business expect in 2021? 
  • Average inflation targeting and why you should remember this phrase. 
Continue reading “Average inflation targeting… remember this term.”

Is the COVID-19 emergency over? An economists perspective.

I recently participated in a conference call with Scotiabank’s Chief Economist & SVP, Jean-Francois Perrault and John Webster President & CEO Scotia Mortgage Corporation.   It was good to hear real financial experts make sense of what has happened and what will most likely happen.

Here are of some of the highlights:

Continue reading “Is the COVID-19 emergency over? An economists perspective.”

Financial Outlook with Jean-Francois Perrault, Chief Economist Scotiabank

Following are the highlights from a telephone conversation with Jean-Francois Perrault, Chief Economist Scotiabank and John Webster, President and CEO Scotia Mortgage Corporation which took place on Thursday, April 9, 2020 at 4:30 p.m.

First, it’s not all bad news. While I’ll have to include some unpleasant information in order to provide a complete picture, that is not the focus.

Continue reading “Financial Outlook with Jean-Francois Perrault, Chief Economist Scotiabank”
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