Canadians rang up five per cent more in personal debt in the first three months of 2011 compared with 2010, according to a report released Wednesday.

As Armine made clear in her presentation, household debt in Canada has steadily risen over the past two decades.  In 1990, the average Canadian household had debt representing just under 90% of its personal disposable income.  Today, that figure stands at roughly 150%.

Household debt is the personal and mortgage debt of Canadian consumers.  It has been on a tear.  According to Statistics Canada, Canadian household debt reached a record 148 percent of disposable income in the third quarter of 2010 before closing the year at 147 percent.  It was 50 percent in 1990 and 110 percent in 2000

The Bank of Canada estimates home equity lines of credit and loans may be up as much as 170 percent in the last decade while mortgage debt at is about half that rate.  Home-equity lines of credit and loans are now about 12 percent of household debt and often end up financing non-housing related purchases like vacations and vehicles.  At the margin, too many Canadians are living off their homes.

“One scenario is that interest rates rise, house prices drop, and more people begin defaulting on their credit card debt and mortgage obligations. An equally worrying – and perhaps more likely scenario – is that interest rates go up a little, and more of people’s disposable income goes to repaying their debt, leading to a significant reduction in consumer spending. Since personal spending on consumer goods and services accounts for 58 per cent of the Canadian gross domestic product, this decrease would provoke a ‘made in Canada’ recession.”

Total household debt in Canada now tops $1.5-trillion, or three times the national debt, MIT said in a statement outlining the paper by Mr. Dunfield and his colleagues in the Action Canada fellowship. That means that while Mr. Flaherty is being fiscally responsible, many of us may not be following suit.

“Canada has also avoided the wide regional performance differences seen in the U.S., where states such as Nevada, California and Florida suffered significantly larger declines than the nation overall,” Mr. Goldin added. “In Canada, house prices in Calgary and Vancouver fell further than those across the nation, but the variance was relatively minor by comparison

Jan. 17 (Bloomberg) -- Canadian Finance Minister Jim Flaherty tightened rules to restrain record household borrowing, giving the Bank of Canada more scope to extend a pause in interest rate increases.

Flaherty said today Canada will shorten the maximum amortization period for government-insured mortgages to 30 years from 35 years, lower the maximum amount homeowners can borrow against the value of their homes, and withdraw its insurance on home-equity lines of credit

Recent research suggests that if interest rates rise by three percentage points, the debt-to-income ratio needs to fall to between 125% and 130% for interest payments on the debt to remain the same

Interestingly, note the rise in mortgage debt which started in 2003.  This is the year that the price ceilings were removed by CMHC, meaning that CMHC would insure any mortgage no matter how high.  This, combined with a loosening in down payment requirements, is quite likely the largest driver in house price increase and debt expansion.  Some economists in Calgary recently calculated that the changes in CMHC insurance requirements have been responsible for 40-70 percent of all house price increases since 2004.

Average household debt soared to a new Canadian record in 2009, rising 5.7% to more than $91,000, according to a study released Monday.

Here are some facts. In this low interest rate environment, Canadians’ debt levels – including credit cards, loans and mortgages – have grown much faster than their incomes. Debt levels are now about one and a half times disposable income, an even higher level than the debt-to-income levels of Americans. Total consumer debt in Canada now exceeds a staggering $1.4 trillion. The Bank of Canada and the Finance Department have expressed concern about personal debt, specifically about what would happen if interest rates were to rise and Canadians discovered they could not afford to be carrying these debt levels.

Consumer bankruptcies have risen significantly over the past year, and they will continue to rise. Clearly, some people are in over their heads, and more will get into trouble when interest rates rise

Despite repeated warnings from Bank of Canada governor Mark Carney, Canadians continue to ratchet up personal debt, leaving the country increasingly vulnerable to economic shock.

Growth in residential mortgages, the biggest single asset of all the major banks, “is continuing to be more robust,” Bill Downe, chief executive of Bank of Montreal, said in an interview.

This particular attraction has faded somewhat recently because the strength of the Canadian dollar means new arrivals have less purchasing power than they had in previous years.