Thursday, July 29

Posthaste: A third of Canadians feel’house poor’, but are ready to take on more debt as economy reopens

Good morning!

While the pandemic certainly improved the financial situation of many Canadians, not everyone has been fortunate enough to build a’wall of wealth’.

Despite surging home prices that have left many Canadians look fiscally stable at least on paper, many are struggling to make ends meet, according to a new survey.

The latest MNP Consumer Debt Index shows the number of Canadians concerned they cannot make ends meet without going into further debt has reached its highest level in three years.

Almost half (45 per cent, up 6 points since March) are not confident they will be able to cover all living and family expenses in the next 12 months without taking on more credit, according to the quarterly poll conducted by Ipsos on behalf of MNP Ltd, released this morning.

“In fact, the proportion of Canadians who report being insolvent, or unable to pay their monthly bills and debt repayments, sits at the highest level recorded since the index was created in 2017 (30 per cent, unchanged),” the survey noted. “Half (51 per cent, unchanged) say they are more concerned about their ability to repay their debts than they used to be.”

For now, the pandemic has helped rein in spending in most households, with the average Canadian family left with $731 after paying all their bills, an increase of $106 compared to the March findings. This may explain why about half (49 per cent) of Canadians feel their debt situation is better now than it was before the pandemic started and are more relaxed about carrying debt than they usually are (45 per cent, -4pts).

But that financial buffer may not last. Canadians are also keeping an eye on rising interest rates, with one in four concerned that rising rates would negatively impact their financial stability, and a third are worried that an interest rate hike could drive them towards bankruptcy.

Homeowners with an outstanding mortgage feel they are at particular risk.

“One-third (32 per cent) of Canadians who own a home say they are’house poor,’ meaning that they don’t have much left over after paying bills related to their home,” according to the survey. “All told , approximately 5.5 million homeowners are susceptible to financial disruptions such as an interest rate increase or change to their job situation. Perhaps it is, therefore, not surprising that two in ten (20 per cent) homeowners say they regret the amount of debt they took on to buy their home.”

But as the pandemic shows signs of retreating at least in the country and the provinces open up, Canadians are ready to spend on travel and entertainment in a big way.

“A significant proportion of Canadians appear to be ready to emerge from their bubbles and go straight into shopping malls, restaurants and airplanes to celebrate the pandemic wind down,” said Grant Bazian, president of MNP Ltd. “For many, the financial damage will likely linger for years even as they regain employment and try to cope with new debts they may have accumulated.”

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