Are we currently experiencing a housing bubble? Should we expect house prices to collapse in the near future? If so, what will the consequences be?<\/p>\n
As a Licensed Insolvency Trustee (LIT), I am not in the best position to discuss the first two questions. My field of expertise is insolvency, i.e. consumer indebtedness.<\/p>\n
I can comment, however, on the likely financial implications resulting from property depreciation.<\/p>\n
This is especially true since there is a link between rising property values and increased levels of debt held by Canadian households.<\/p>\n
The average level of debt held by Canadians has reached a historic high of 167.3%. However, statistics from the Office of the Superintendent of Bankruptcy Canada (OSB) show that the number cases of insolvency in Quebec and Ontario is declining.<\/p>\n
How could it be possible that people are more indebted but less insolvent?<\/p>\n
Part of the answer may be hidden in the popularity of home equity lines of credit. This is a key variable linking rising property values and the level of debt held by Canadian households.<\/p>\n
Unsurprisingly, mortgages represent the largest percentage of debt of Canadian households: 77%. However, many will be surprised to learn that lines of credit represent 48% of all other debts.<\/p>\n
The growing popularity of this product has led the\u00a0Financial Consumer Agency of Canada (FCAC) to conduct a study on the phenomenon<\/a>.<\/p>\n The FCAC report notably shows a direct correlation between the use of home equity lines of credit and increase in the level of indebtedness of Canadians. Both data points have had a virtually identical progression over the past 15 years.<\/p>\n The report also indicates that:<\/p>\n \t\t\n