Tuesday, January 4, 2011

148% Debt to Income-Ratio Has Long Way to Go

A couple of weeks ago Mark Carney, from the Bank-of-Canada, said the average Canadian's debt to income-ratio was 148% -- "much too high" he said, "we need to tighten our belts."

Since that press release, every time I turn on the radio or the TV somebody's talking about 148% this or a 148% that. Even P.M. Stephen Harper weighed in, "we've tightened mortgage rules before" threatened the Prime Minister,"if we have to do that again, we will". Wow, even the Prime Minister of Canada has something to say about mortgages!

To get the whole story on this 148% issue, I turned to Google. I searched the term "148% debt." Here's what I found.

First I found a blogger from somewhere in Europe who says he is personally 148 Million in debt. Here's the entry if you don't believe me: http://www.manindebt.com/2010/02/01/over-148-million-in-debt. I'm not sure how he came up with that figure - when you look at things a bit closer it appears he's only $75K (in $US) in debt. Even at just $75K, since he only makes around $20K per year, his debt to income ratio is a whopping 375%! Now that's high!

Then I found this press release from last year saying that Lebanon's debt was 148% of its GDP, amounting to something like $51 Billion US dollars. Now that's a lot of hummus! Here's that article in case your into Lebanonese economics: http://www.meed.com/sectors/economy/lebanon-debt-hits-148-of-gdp/3050036.article

Depsite all my reseach, I felt that something was still missing. Then, the answer hit me like a bolt of lightening, somewhere between the 25th of December and new-years eve, one night while in a stupour.

The reason Canadians carry a lot of debt relative to other countries, like the US for example, is that house prices keep going up in Canada, or have remained stable, while prices in the US tanked. And guess what you need when you buy a house? You guessed it - a mortgage! Eureka! There was the answer, right there next to a half a bottle of Absolut! The amount of debt we have is directly correlated to the strength in our real-estate market!

Thankfully, so far, Canadians have been able to service their debt payments. So, Canada, just stay the course. Keep on doing exactly what your doing! And Happy New Year!

I hope your 2011 if filled with great things including your highest number of real estate transactions ever!


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