Calm Before The Storm – “While some point out that Canadians delinquency and default rates are very low, this is often the case in a credit boom because the availability of cheap credit allows people to keep borrowing.”

“With Canadians so deep in debt, it would be extremely difficult for domestic spending to pick up slack in the economy if things started to go downhill. That could result in a serious downward spiral in employment levels, household spending and the quantity and quality of credit outstanding, the report says.
“There’s a legitimate fear that there may be a Wile E. Coyote moment here,” says Hopkins.
“Households are spending money they assumed would be coming, then they realize they’ve run over the cliff because income from exports from these trading partners is not materializing and that’s translating to weaker jobs.”
The situation Canada currently faces is unique, the authors say, because domestic consumption is usually the more steady contributor to economic growth compared to exports and investment. But this time, household debt is out of control.
“Right now it all depends on the household sector and the household sector is overstretched, especially compared to historical trends,” Hopkins says.”


“While some point out that Canadians delinquency and default rates are very low, the Moody’s analysts say this is often the case in a credit boom — the “calm before the storm” — because the availability of cheap credit allows people to keep borrowing and gives more flexibility in paying it back.
The problem is once a crisis hits, which most likely would be caused by external factors, it could be exacerbated because so many Canadians have little wiggle room to borrow and spend. Defaults and delinquencies could rise quickly and leave more households underwater, they say.”

– from ‘Canadians stretched to limit as Moody’s warns of sky-high debt loads’, G&M, 6 Sep 2012

When it turns, virtuous cycle turns vicious.
Not a wish, simply the way it will be.
– vreaa

7 responses to “Calm Before The Storm – “While some point out that Canadians delinquency and default rates are very low, this is often the case in a credit boom because the availability of cheap credit allows people to keep borrowing.”

  1. pricedoutfornow

    I love how the media likes to pretend that nobody is yet underwater in Canada. This is simply not the case. I know a few people who bought in the Okanagan from 2004-2007 and are now severely underwater (condo bought for $250k now worth $165k for example). Why does the MSM pretend like this isn’t already happening in Canada? I guess it’s all about the big cities and nothing will really sink in until the market sinks here. The small towns tell pave the way….

  2. Of course delinquency rate is low in recent years. If somebody is unable to afford the mortgage payment, he can just list his place for sale and in a hot market he would be able to offload it quickly. Now that the market has slowed and prices fallen, expect delinquency to go way up.

  3. in yesterday’s maple ridge paper there are 113 listed properties on page 10 for sale under the land tax sale. Calm before the storm? or just maxed out “home owners”

  4. Wonderful article but I don’t know that I agree. However, people consider me tricky at the best of times! Thanks.

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