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Thursday, 8 December 2011
Europe's debt crisis a risk here, Bank of Canada warns
Record household debt expected to rise
A major area of concern for the bank is the high level of indebtedness of Canadian households that have taken advantage of the low interest rate environment of the past several years to buy homes, cars and other items on credit.
Although household debt-to-income is now at a record 149 per cent, higher than even in the United States, the bank fully expects that ratio to increase further.
That leaves Canadian households vulnerable to a shock, such as a sharp rise in unemployment caused by an economic slowdown or a significant decline in house prices, which would sap household wealth.
The bank regards the situation serious enough that it advises the government to "continuously assess the risks arising from the financial situation of the household sector."
Recently, the International Monetary Fund said Ottawa may need to again revisit eligibility rules for obtaining mortgages, even though the federal government have tightened conditions three times in as many years.
The bank doesn't go that far, but notes that after March — the last time mortgage requirements were stiffened — mortgage credit slowed, but has since picked up.