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Now, you could argue that this is a fairly rationale outcome after a long period of economic expansion and home price appreciation. And interest rates were, on average, even lower in the 2012 to 2016 period. But, the WSJ posits that this could be a signal that people simply need the cash -- which is why the majority are willing to accept a higher interest rate. Here is another chart from a different WSJ article:
Housing debt (mortgage balances) has come way down since 2008, but non-housing debt has come way up and now exceeds that of the former. Non-housing consumer debt rose by about $1 trillion in real dollars from 2013 to 2019, principally driven by student loans and car loans. Noteworthy is the fact that student loans are rising fairly linearly (along with dramatically), whereas car loans and credit card debt seem to follow the overall economy.
When people are feeling richer (and confident about their economic prospects) they go out and buy things, like cars.
Charts: WSJ
Rachelle Younglai and Chen Wang's recent piece in the Globe and Mail on suburban household debt (in Canada) has a number of interesting stats. Here are some of them:
Looking at debt service ratios across the country, the most financially stressed neighborhoods in Canada are almost exclusively in the suburbs. (Map of the Greater Toronto Area shown at the top of this post. Data from Environics Analytics.)
A few years ago I wrote a post talking about "depression babies." In it, I cited a research paper that looked at the impact of macroeconomic shocks on people's willingness to take on financial risk in the future. The term "depression babies" stems from the Great Depression and how it is believed to have impacted risk taking, savings rates, and probably many other things.
I was reminded of this when I read this recent article in the WSJ talking about how the Chinese have started spending -- and taking on the debt -- like Americans, particularly among Chinese under 30. It is the inverse of the depression baby phenomenon. In this case, it is arguably years of economic expansion leading to greater comfort around financial risk.
Here are a couple of figures from the article:
JPMorgan estimates China’s ratio of household debt to gross domestic product will climb to 61% by 2020. That’s up from 26% in 2010 and higher than current levels in Italy and Greece.
The level in the U.S. is about 76%, after falling from 98% in 2006, according to the International Monetary Fund.
By another measure—the ratio of household debt to disposable income—China appears to have already surpassed the U.S. Its ratio reached 117.2% in 2018, up from 42.7% in 2008, according to calculations by Lei Ning, a researcher at the Institute for Advanced Research at Shanghai University of Finance and Economics. The U.S. peaked at 135% in 2007 and dropped to 101% in 2018.
Not surprisingly, the article goes on to talk about how this dramatic increase in household debt might be something to worry about. Maybe. I'm not an economist. But I do think this is designed to boost the Chinese growth machine and I do think it makes them less reliant on other countries -- such as, maybe, the United States.
Now, you could argue that this is a fairly rationale outcome after a long period of economic expansion and home price appreciation. And interest rates were, on average, even lower in the 2012 to 2016 period. But, the WSJ posits that this could be a signal that people simply need the cash -- which is why the majority are willing to accept a higher interest rate. Here is another chart from a different WSJ article:
Housing debt (mortgage balances) has come way down since 2008, but non-housing debt has come way up and now exceeds that of the former. Non-housing consumer debt rose by about $1 trillion in real dollars from 2013 to 2019, principally driven by student loans and car loans. Noteworthy is the fact that student loans are rising fairly linearly (along with dramatically), whereas car loans and credit card debt seem to follow the overall economy.
When people are feeling richer (and confident about their economic prospects) they go out and buy things, like cars.
Charts: WSJ
Rachelle Younglai and Chen Wang's recent piece in the Globe and Mail on suburban household debt (in Canada) has a number of interesting stats. Here are some of them:
Looking at debt service ratios across the country, the most financially stressed neighborhoods in Canada are almost exclusively in the suburbs. (Map of the Greater Toronto Area shown at the top of this post. Data from Environics Analytics.)
A few years ago I wrote a post talking about "depression babies." In it, I cited a research paper that looked at the impact of macroeconomic shocks on people's willingness to take on financial risk in the future. The term "depression babies" stems from the Great Depression and how it is believed to have impacted risk taking, savings rates, and probably many other things.
I was reminded of this when I read this recent article in the WSJ talking about how the Chinese have started spending -- and taking on the debt -- like Americans, particularly among Chinese under 30. It is the inverse of the depression baby phenomenon. In this case, it is arguably years of economic expansion leading to greater comfort around financial risk.
Here are a couple of figures from the article:
JPMorgan estimates China’s ratio of household debt to gross domestic product will climb to 61% by 2020. That’s up from 26% in 2010 and higher than current levels in Italy and Greece.
The level in the U.S. is about 76%, after falling from 98% in 2006, according to the International Monetary Fund.
By another measure—the ratio of household debt to disposable income—China appears to have already surpassed the U.S. Its ratio reached 117.2% in 2018, up from 42.7% in 2008, according to calculations by Lei Ning, a researcher at the Institute for Advanced Research at Shanghai University of Finance and Economics. The U.S. peaked at 135% in 2007 and dropped to 101% in 2018.
Not surprisingly, the article goes on to talk about how this dramatic increase in household debt might be something to worry about. Maybe. I'm not an economist. But I do think this is designed to boost the Chinese growth machine and I do think it makes them less reliant on other countries -- such as, maybe, the United States.
34 of the top 100 most financially strained neighborhoods in Canada are located in Brampton, Ontario.
Brampton has grown at 2x the rate of Toronto over the last decade.
43% of Brampton's housing was built between 2001 and 2016.
80% of homeowners in Brampton have a mortgage compared to 63% across the Toronto region as a whole.
80% of Brampton's property tax revenue comes from residential property (not surprising). In comparison, 47% of Toronto's property tax revenue comes from commercial properties.
About 2/3 of Brampton's work force leaves the city for their job. This makes sense given the above point.
The other thing the article talks about is the increase in the average household size in many suburban communities as a result of people renting out parts of their house.
One Brampton gentleman is quoted as saying that he rents his basement out to 3 or 4 students and his upstairs bedrooms to two truckers. This translates into typically 6 vehicles parked in his driveway.
Assuming this is the trend, I wonder how much of this additional income is being reported to CRA. Because if it's not, then it could be throwing of these debt ratios and making the financial situation look more dire than it is.
In any event, I think this speaks to, among other things, the role that many suburban communities now serve for new immigrants coming to Canada. They are doing what they can to try and get ahead.
It's also worth noting that if you look at the above map of the Greater Toronto Area, the lowest "debt spots" are in fact where homes tend to be the most expensive -- the core.
Map: The Globe and Mail
34 of the top 100 most financially strained neighborhoods in Canada are located in Brampton, Ontario.
Brampton has grown at 2x the rate of Toronto over the last decade.
43% of Brampton's housing was built between 2001 and 2016.
80% of homeowners in Brampton have a mortgage compared to 63% across the Toronto region as a whole.
80% of Brampton's property tax revenue comes from residential property (not surprising). In comparison, 47% of Toronto's property tax revenue comes from commercial properties.
About 2/3 of Brampton's work force leaves the city for their job. This makes sense given the above point.
The other thing the article talks about is the increase in the average household size in many suburban communities as a result of people renting out parts of their house.
One Brampton gentleman is quoted as saying that he rents his basement out to 3 or 4 students and his upstairs bedrooms to two truckers. This translates into typically 6 vehicles parked in his driveway.
Assuming this is the trend, I wonder how much of this additional income is being reported to CRA. Because if it's not, then it could be throwing of these debt ratios and making the financial situation look more dire than it is.
In any event, I think this speaks to, among other things, the role that many suburban communities now serve for new immigrants coming to Canada. They are doing what they can to try and get ahead.
It's also worth noting that if you look at the above map of the Greater Toronto Area, the lowest "debt spots" are in fact where homes tend to be the most expensive -- the core.
Map: The Globe and Mail
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