Thank you.
Just as one point of clarification, if I may, we didn't say that the levels of household debt are unsustainably high. We were talking about a dynamic in one of the technical boxes of a steady increase in home equity lines of credit. That's an unsustainable dynamic over time that is going to reach a new equilibrium and move from there.
But I think the thrust of your question is on point, which is that this is the biggest single domestic risk to the Canadian economy: the level of household debt and associated developments in the housing market. We have highlighted in the report that this is the major risk to the downside.
I would observe as well that the pace of accumulation of household debt has slowed over the course of the last two years. It has gone from running at a rate of about 9% or 10% per year to present figures, which are around 4% per year.
We think that is in part due to measures that have been taken, not least by the Superintendent of Financial Institutions, to tighten home equity line of credit underwriting standards to increase the capital standards for Canadian banks faster than they are being increased internationally, and in part due to measures that have been taken by the government on three separate occasions to tighten the mortgage insurance rules managed by CMHC, which helps reduce high-ratio mortgages.
But the point, we think, is that Canadians need to continue to be prudent in this environment—interest rates are exceptionally low—when taking on long-term debt, such as for mortgage rates, which are not always going to be this low. Indeed, in our projection we foresee the possibility of some withdrawal of this monetary stimulus over the course of the projection period. So in taking on new debt, Canadians need to think about the carrying cost of that debt over the lifetime of the loan or the mortgage, size it appropriately, and decide between the terms—fixed or variable—appropriately.
I will note as a final point that what we've also seen in recent months is that the proportion of variable rate debt on new debt that's being taken on—new mortgages that have been taken on—has gone down quite substantially and is running in the low teens at present.