IMF data shows notable divergences compared to other North American housing bubbles
Since 2005, Canadian household debt has grown markedly faster than the rate of GDP increase, data from the International Monetary Fund indicated.
As of the first quarter of this year, the household-debt-to-GDP ratio stood at 101.9%, representing a 1.2% annual gain.
In the Q1 2005 to Q1 2020 period, the ratio went up by 49.8%. For perspective, Canadian GDP growth during this 15-year time frame was at 45.9%.
According to real estate information portal Better Dwelling, further comparisons can be made with the ratios seen in the United States, which laboured under its own housing bubbles during this period.
The US household-debt-to-GDP ratio grew by 1.7% year over year to reach 77.2% during the first quarter. However, the ratio fell by 12.6% from 2005 to 2020.
“The US peaked at 99.82% in Q1 2008, and then slid until 2019 – when it finally bottomed at 75.9% in Q2,” Better Dwelling said. “American households did this through a combination of deleveraging, and GDP growing faster than debt.”
These divergences might prove to be valuable tools in finding out what futures steps would work best in Canada’s situation.
“Canadian GDP has grown much faster than US GDP over the past few years, but it’s different growth,” Better Dwelling said. “American GDP growth has largely been driven by productive increases, not household debt. To contrast, Canada has been leaning on household debt, not unlike the US did before the Great Recession. Borrowing future growth works and leads to impressive numbers, until it doesn’t.”
