Finance Committee on Oct. 30th, 2018

[Yves Giroux]

Yes.

Moreover, when one of the committee members asked the governor what keeps him awake at night, I wondered what my own answer would be. I sleep well at night, but one of the things that concerns me is the level of household debt.

The rate of indebtedness has reached a very, very high level, despite the fact that interest rates are low. That continues to be a concern for me, because interest rates will be going up, even if they are forecast to do so only slightly. The governor mentioned it earlier. The interest rate is supposed to stabilize around 3%, which will mean servicing the debt will cost more. As a result, the part of disposable household income that is used to pay back the debt will go from about 14% to almost 16%.

That may seem like a small increase, but, for a middle class household, it can easily mean an average of $1,200, $1,500 or $2,000 per year, which is not a negligible amount. As you know, families just starting the first phase of family life take out large mortgages and car loans. For them, the increase I have just mentioned will be bigger.

So, yes, it does concern me.

[The Chair, Liberal, Wayne Easter]

Okay, we'll have to go to Mr. Fergus.

Before we do, we're soon going to have to cut the mustard here and go to vote. Where there was one vote, there are now four, so we have to figure out what we do following this round of questions and whether we come back. There's a NATO meeting that I know people want to vote at, at 6:30, and there's a BIA briefing at seven o'clock for all parties and senators.

People need to think about what they want to do, whether we cut it here or come back and go to four more questions.

We'll go to you, Mr. Fergus.

[Greg Fergus, Liberal, Hull—Aylmer, QC]

Thank you very much, Mr. Chair.

Welcome, Mr. Giroux. Thank you for your report.

I would like to continue along the same lines as Mr. Julian and talk about Canadians' household debt. You said that the thing that keeps you awake at night is not so much the debt as our ability to repay it.

When I was young, my parents had to contend with interest rates of 12% or 13%. When I bought my first house, the five-year rate on my first mortgage was about 8%. Now the rates are around 3%. That is unheard of.

How able are Canadian households to pay back their debts? The Bank of Canada indicates that the key rate should range from 2.5% to 3.5%, but, if the part of household income that goes to paying back the debt exceeds 16%, it would be the straw that breaks the camel's back, don't you think?

[Yves Giroux]

To answer that question, we have to look at the economic situation of the households in its entirety. Over the years, interest rates have dropped markedly. The government mentioned it, as you did. I lived through it too, not when I bought my house, but a lot earlier. Interest rates were high.

The drop in interest rates has improved access to property. The price of houses then started to go up. When interest rates go down, house prices go up. So is access to property better now than it was 20 years ago? It is difficult to answer that question with absolute certainty.

We are seeing some effects today: interest rates are low, but household debt levels are high. When I entered the labour market, it was very difficult to find a job. Now, my 19-year-old daughter drops off a resumé or two and gets a job immediately. Access to property is a little difficult because of the high prices, the level of household debt is high, but the labour market is very solid.

As every good economist could say, you have to look at both sides. Even though household debt is a particular concern, especially at the start of a period of increasing interest rates, the labour market is very solid. That makes me optimistic as to the capacity of the households to pay back their debts, if interest rates increase as we expect. As economists, we also know that we are often wrong.

The concern would be if interest rates continue to increase and exceed the rates we are expecting in the medium term. The problems for households could then be excess debt and the inability to pay it off.

[Greg Fergus, Liberal, Hull—Aylmer, QC]

Your predecessors have all sounded the alarm about the level of indebtedness of Canadian families. They have said that the rates of indebtedness was not going to go down. According to your report, the rate is reaching a plateau and it will slow down and stabilize at 177%.

Could you explain why you have come to the conclusion that the rate is about to level off? Are there indicators that tell you that Canadians are paying off their debts more seriously than in the past?

[Chris Matier, Senior Director, Economic and Fiscal Analysis, Office of the Parliamentary Budget Officer]

Two factors inform our outlook for the household debt to income ratio being relatively stable over the projection. We see the increase in interest rates that is going to help slow borrowing, but we also see the moderation in economic growth, so income growth will be slowing. It's really these two factors, as well as a slower growth rate of real housing prices.

[The Chair, Liberal, Wayne Easter]

I'm sorry, Greg, but we're done.

Are there any burning questions for the Parliamentary Budget Officer that we have to come back to? Now that there are four votes, I would estimate that we won't be back here until probably 6:30 at that.

Go ahead, Peter.

[Peter Julian, NDP, New Westminster—Burnaby, BC]

I'd like to suggest that we have the Parliamentary Budget Officer back another time. There are lots of questions we can ask. He and his office are a great help to Canadians, but I'm not sure keeping him waiting for 45 minutes is particularly nice or polite on an evening like tonight.

[The Chair, Liberal, Wayne Easter]

I think that's a very good suggestion. We will leave it at that.

You didn't get a very rough time, as the new Parliamentary Budget Officer, Mr. Giroux. That's a good way to start.

We will be meeting tomorrow evening to finish up our study on money laundering.

The meeting is adjourned.