Canada column for Sunday, Feb. 26/12
THE CANADIAN REPORT
(c) By Jim Fox
Canadians who have taken advantage of record-low interest rates must moderate their debt load or possibly face “substantial negative economic consequences,” the Bank of Canada warns.
In a research paper, Canada’s central bank said many Canadians have constructed their finances on a “house of cards.”
This could come crashing down once interest rates start increasing or if housing prices fall, it said.
The bank cautioned that families have taken on too much debt but didn’t expect there would be a U.S.-style housing meltdown as banks have more stringent credit regulations in Canada.
Debt loads have been rising, with a typical 31- to 35-year-old now owing $120,000 compared to $75,000 a decade ago, the report said.
Finance Minister Jim Flaherty said interest rates have “nowhere to go but up," although economists don’t suggest that will happen for more than a year.
“It isn’t necessary for everyone to have the most expensive house they can buy," he said.
The concern is that house prices have risen sharply in the past decade and continue to do so along with debt for to pay for larger mortgages and home equity loans to finance other purchases.