Construction Industry Forecasts

With the overnight rate at only 1.00%, the Bank of Canada and especially Governor Mark Carney have been advising Canadians to go easy on the borrowing.

There is the danger of becoming caught short once interest rates start to rise and monthly carrying charges increase dramatically.

Over the last several days, more light has been shone on Canadians’ debt holdings by Statistics Canada.

The government’s statistical agency has been releasing results from its Canadian Financial Capabilities Survey.

There are approximately 13.4 million households in Canada containing the total population of 34 million. That means the average household is comprised of 2.5 individuals.

Most people, comedians aside, understand that the half individual in that figure is a mathematical expression.

In 2009, 76% of Canadians lived in a household that carried debt.

Among those three-quarters of all households, the average level of debt was $119,000.

The results are further refined according to ratio of debt to pre-tax income and debt to assets.

Young people are more likely to be heavily laden with either mortgages and/or consumer loans.

Among “couple families” in the 19 to 34 year-old age grouping, – which, by the way, is established according to the age of the person responding to the survey – the debt to pre-tax income ratio was 180%.

In other words, for every $1,000 in pre-tax income, those families owed $1,800.

The ratio dropped with age. Couple families in the 50 to 64 year-old grouping owed $1,250 for every $1,000 of pre-tax income, a ratio of 125%.

The Bank of Canada has assessed that households are at greatest financial risk if their annual debt repayments, including both principal and interest, are 40% or more of their income.

In 2009, that benchmark level encompassed 4.2% of total Canadian households.

However, the benchmark figure applied for a much higher 9.6% of lone parent families.

For couple families with children, it was only 3.8%.

A corollary to the overall debt question is the nature of retiree and seniors’ debt .

This carries added importance as the post-World War II baby boom generation, born 1946 to 1966, pushes the age boundaries.

The first baby boomers reach the traditional retirement age of 65 this year.

Of course, at the back end, many individuals are retiring younger than 65 and, at the front end, the rules have been changed to allow people to work longer if they so chose.

These trends are occurring not just in Canada, but around the world. Extending the retirement age has become particularly important in nations experiencing sovereign debt problems. It reduces the social burden on government.

Statistics Canada has found that 34% of retired individuals aged 55 and over held debt in 2009. The median amount was $19,000.

For people 55 and older who were not yet retired, 67% held mortgage and/or consumer debt and the median amount was $40,000.

Among retired people with debt, 17% owed $100,000 or more.

Debt was also found to be a function of age. Nearly half (48%) of retirees aged 55 to 64 had some form of debt. However, among retirees aged 75 and over, only 20% had either mortgage or consumer debt.

The study found there is a case to be made for acquiring property. Home ownership, income and education were all associated with higher levels of net worth and lower debt-to-asset ratios.

The data set also makes a case for staying married, once one has embarked down that path. That having been said, there is also a financial point to remaining single.

Divorced people who were retired had the highest incidence of debt (43%). Next most likely to be indebted were people in a couple (35%).

The percentages likely to hold some form of debt dropped for both those who never married (30%) and widows or widowers (28%).

Divorced retirees had the lowest annual median income and net worth.

At the other end of the age spectrum, Statistics Canada has also issued 2008 official figures on births in the country.

The fertility rate in 2008 was its highest since 1992, 1.68 children per woman on average.

That still fell short of the 2.1 generational replacement rate which would keep the population stable in the absence of any inward or outward migration. 

At 107.4 births per 1,000 women, the fertility rate was highest among those aged 30 to 34. The 25 to 30 year-old age grouping came next.

The fertility rate among women aged 40 to 44 more than doubled between 1988 and 2008 (from 3.6 births per 1,000 women to 8.4), but remained well below age groupings under 40.

Thanks are extended to Matt Hurst, Senior Analyst with Canadian Social Trends within Statistics Canada, for assistance with some of the numbers in this report.

Alex Carrick

Find Canadian construction-related economic articles in Canadian Construction Market News and in the Economic Outlook section of Daily Commercial News. Mr. Carrick also has a lifestyle blog that can be reached by clicking here.