What Statistics Canada just said about "debt and financial distress among Canadian families," and how debt-to-income could be misleading

One of the most interesting findings in the Stats Can study, is how homeowners had lower probabilities of delaying or skipping on non-mortgage related debt when compared with those who did not own their dwelling. This kind of helps us make sense of the results that show how those with lower debt-to-income ratios were more likely to skip or delay a non-mortgage payment or use a payday loan. 

One way of interpreting this is that those with a mortgage or higher debt-to-income could have the ability to leverage the equity in their assets to continue regular debt payment- that is, if their assets have value, and of which they have equity in. If true, at least part of the time, one question would be: how long will this last before these folks strip their assets of equity or the possibility of asset prices falling? And what could the 2017 and newer data reveal to us now, given that home prices have been pretty flat (and in some cases, falling) since the summer of 2017?

What's more, the study flagged how families in the bottom 20 percent of the income bracket (after tax) were also more likely to delay or skip payments of non-mortgage debts than those in the top 20 percent. Single parents were three times more likely to use payday lenders than couples with no children, and were the most likely to delay or skip a mortgage payment (!). This is a clear highlight of some of the most financially vulnerable in Canadian society: single parents, and the bottom 20 percent. 

This subset of people could very well be in various debt-to-income ratios, because some might have low income but decent asset values, while others might have low income and terrible asset values. So, responding to financial distress based on debt-to-income could do more damage than good. Kudos to the Stats Can study for flagging the importance of debt-to-asset, and the fact that, even if people have low debt-to-income ratios on paper, if their assets are worth close to nothing they could still turn out to be high risk borrowers and miss or delay a debt payment. 

Unfortunately, the Canadian government wants to keep the real estate asset bubble going, for example, by introducing a new first-time home buyer's incentive program slated to begin in September of this year, right before an important federal election. While many are dependent on their asset values to increase year-over-year, month-over-month, the problem with the debt-fueled asset price inflation boom in homes is that it's causing a whole subset of Canadians, who don't necessarily have high debt-to-income ratios, to seek delays or miss debt payments. Worse, people are being forced to seek payday loans and usurious interest rates because they have been priced-out of home ownership and, by extension, have little asset value to lean on against that which to borrow, and in effect, keep up with the Jones'.