Prudence required when it comes to household debts: CIBC

| Monday, 20 December 2010
While Canadians aren’t in “hot water” yet when it comes to the pace of household debt, prudence is required over the next five years to ensure rising interest rates don’t push too many homeowners into default, according to a report released by CIBC World Markets.

“The pile of debt accumulated thus far doesn’t seem likely to be followed by a flood of defaults, given the restrained pace of interest rate hikes… nevertheless, at the margin, there is reason to begin to par the pace of mortgage and other credit growth in the coming years, particularly for the most marginal borrowers,” stated the report.

The report reiterated the fact that Canadian lending has not included a sub-prime component and that non-mortgage credit has been doled out to those consumers with better credit scores, in stark contrast to conditions in the U.S. prior to 2008.

The report also suggests that Canadians may take some of the required steps towards reducing debt, as the “pressure to borrow more has come from the efforts to keep pace with housing prices.” With prices looking to cool in 2011, mortgage sizes will come down over time and “better income growth ahead might also help make homes more affordable without extending debt loads to the max.”

Overall, the report predicts consumer spending and housing will “provide less of a lift to economic growth.”