Statistics Canada dropped something interesting in their Q3 2024 data release. Alongside the usual household debt numbers, they included a normalized comparison with the United States.

The timing is what stands out.

US household debt-to-income peaked at around 127% to 134% in 2007, right after home prices topped in 2006. Then came the crash that rippled across the global economy.

Canadian household debt-to-income peaked at 174% in Q3 2022, shortly after Canadian home prices hit their all-time highs in February 2022. Since then, both debt and prices have been coming down, but the parallel is hard to ignore.

Whether this is Canada's 2007 moment is still an open question. But the pattern looks familiar.

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What the Numbers Actually Show

Canadian household debt sat at 173.1% of disposable income in Q3 2024, meaning there's $1.73 in debt for every dollar of income. That's down from the peak but still higher than the US ever reached before its housing crisis.

For context, US household debt-to-income bottomed around 100% in the early 2000s before climbing to its pre-crisis peak. After 2008, Americans spent years paying down debt. The ratio fell to around 100% by 2012 and continued declining, reaching roughly 75% by 2021.

Canada went the other way. While US households deleveraged after 2008, Canadians kept borrowing. The debt-to-income ratio climbed from around 100% in the mid-1990s to 140% by 2008, then continued rising through the 2010s, hitting 180% in 2019 before peaking at 174% in 2022.

That's a 40-year accumulation of household debt that only started reversing two years ago.

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The Housing Connection

Both countries saw debt peak right after housing did. In the US, home prices topped in mid-2006. Household debt peaked in Q4 2007. Within a year, the financial system was in crisis.

In Canada, home prices peaked in February 2022. The Teranet-National Bank House Price Index peaked a few months later in May 2022, then dropped 10%, the largest contraction since the index began in 1999. Household debt peaked in Q3 2022.

The mechanics are straightforward. Rising home prices let people borrow more. Home equity lines of credit get tapped. Refinancing pulls cash out. Buyers stretch to afford pricier homes. All of that shows up as household debt.

When prices stop rising, the borrowing slows. When prices fall, the debt becomes harder to service because the collateral is worth less while the obligation stays the same.

The US experience showed what happens when highly leveraged households face falling asset prices and rising unemployment at the same time. Credit tightens. Spending drops. Foreclosures spike. The whole system locks up.

Canada hasn't seen that scenario play out yet. But the debt levels suggest the vulnerability is there.

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Where Canada Sits Today

The good news is that Canadian household debt has been falling for six consecutive quarters as of Q3 2024. Income growth has outpaced debt growth, which is how deleveraging is supposed to work.

The household debt service ratio, which measures debt payments as a share of income, dropped to 14.9% in Q3 2024 from over 15% earlier in the year. That's the amount of income going toward principal and interest payments on all debt.

For comparison, the US debt service ratio peaked around 13% in 2007 before falling below 10% by 2012 as households paid down debt and refinanced at lower rates.

Canada's ratio remains elevated partly because of how mortgages work here. Most Canadian mortgages are fixed for five years, then reset. That means borrowers who locked in rates at 2% in 2020 and 2021 are now renewing at 4.5% to 5.5%, depending on their lender and credit profile.

Roughly 1.2 million fixed-rate mortgages are up for renewal in 2025, with 85% originally contracted when the Bank of Canada's rate was 1% or below. Those payment increases are substantial. A $500,000 mortgage at 2% costs about $2,120 per month. The same mortgage at 5% costs $2,920. That's an extra $800 monthly, or $9,600 annually.

Not all households can absorb that jump without cutting spending elsewhere or falling behind on payments.

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The Deleveraging Question

After 2008, US households went through what economists called "the great deleveraging." Debt declined for nine consecutive quarters starting in Q4 2008. That had never happened before in US economic history.

Some of that deleveraging was voluntary. People paid down credit cards and stopped taking out home equity loans. But a lot of it was involuntary. Foreclosures wiped out mortgage debt. Banks wrote off bad loans. Defaults cleared balances.

Canada has started deleveraging, but gently. Debt is falling relative to income, but mostly because incomes are rising, not because debt itself is shrinking dramatically. Total household credit market debt hit $2,993 billion in Q3 2024, up 1% from the previous quarter.

That's slow growth, but it's still growth. The US saw outright declines in total debt for years after 2008.

The difference matters because gradual deleveraging is sustainable. Sharp deleveraging usually means financial distress. Canada is experiencing the first kind. Whether it stays that way depends on what happens to employment and income growth.

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Where the Risk Actually Lives

Not all household debt is created equal. Mortgage debt is secured by property. If prices stay stable or rise, mortgage debt is relatively safe. If prices fall and unemployment rises, mortgage debt becomes a problem.

Canada's household debt is roughly 75% mortgages and 25% consumer debt. That mix is similar to the US before 2008.

The vulnerability is concentrated in specific groups. Households aged 35 to 44 have the highest debt-to-income ratios, averaging around 238% as of Q4 2024. That's the age when people buy their first homes or upgrade to larger ones, often at peak prices.

Younger households under 35 actually have lower debt ratios now than they did two years ago, but not for good reasons. Many can't afford to buy homes at current prices, so they're not taking on mortgage debt. The youngest households are the only age group to continuously decrease their mortgage debt since late 2022.

Older households aged 55 and up are increasing mortgage debt, likely to help younger family members buy homes or to purchase investment properties. That shifts risk to people who are closer to retirement and have less time to recover from a downturn.

Regionally, Ontario and BC are driving most of the stress. These provinces have the highest home prices and the highest household debt levels. They also have the highest mortgage delinquency rates in the country.

Kelowna sits in BC, where the average home price peaked around $900,000 in 2022 before pulling back to the $750,000 to $800,000 range today. That correction helped some, but prices are still well above pre-pandemic levels, and many homeowners locked in at peak prices with low rates are now facing renewals.

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The Structural Difference

Canada isn't exactly like the US in 2007. Some important differences reduce the risk of a similar meltdown.

Canadian mortgages require stress testing. Borrowers must qualify at a rate roughly 2% higher than their contract rate. That means most people renewing now should be able to handle the higher payments, at least in theory.

The US had no such requirement before 2008. Subprime borrowers got mortgages they couldn't afford even at the initial teaser rates. When those rates reset, defaults spiked immediately.

Canadian mortgage insurance also works differently. High-ratio mortgages (down payment under 20%) must be insured through CMHC or private insurers. That protects lenders from losses, which limits systemic risk.

The US had private mortgage insurance too, but it didn't cover all high-risk loans. Many subprime mortgages were packaged into securities and sold to investors who didn't understand the underlying risk. When those loans defaulted, the losses cascaded through the financial system.

Canada's banking system is also more concentrated and better regulated. The Big Five banks dominate mortgage lending and have stricter underwriting standards than the fragmented US system had before 2008.

All of that reduces the probability of a US-style financial crisis. But it doesn't eliminate the risk of a painful housing correction that weakens the broader economy.

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What Happens If Income Growth Stalls

The current deleveraging depends entirely on income growth. As long as wages rise faster than debt, the debt-to-income ratio falls. If income growth stalls or turns negative due to rising unemployment, the ratio starts climbing again.

Recent IIF data shows Canada bucking the global deleveraging trend. Private and public debts typically have an inverse relationship, but Canada is an exception. Household debt continued rising alongside government debt, defying the pattern seen in most other developed economies.

BMO economists noted this divergence but stopped short of spelling out the implication. If debt is the fallback in good times, what's left to mitigate bad ones?

During the 2008 crisis, Canadian households went on a borrowing binge to offset economic weakness. During the 2020 pandemic, governments did the same. Now both households and governments are carrying substantial debt loads.

If the next economic shock hits, neither has much capacity to absorb it. Households can't borrow more without becoming dangerously overleveraged. Governments are already running large deficits.

That leaves monetary policy as the main tool. The Bank of Canada could cut rates to near zero again, but that just encourages more debt accumulation, which is how Canada got into this situation in the first place.

The Local Picture

Kelowna's housing market has cooled from its pandemic highs but hasn't crashed. Prices adjusted, sales volumes dropped, and inventory normalized. The market found a new equilibrium.

But household debt in the Okanagan mirrors the national trend. Many homeowners are carrying mortgages taken out at peak prices. Many will renew at significantly higher rates over the next two years.

For buyers, this creates a tricky calculation. Prices have come down from 2022 peaks, but affordability hasn't improved much because rates are higher. Monthly carrying costs on a $750,000 home at 5% are similar to an $850,000 home at 3%.

For sellers, it means buyers are more cautious. They're stress-tested and can afford the payments, but they're not rushing to buy. They're waiting for better rates or lower prices or both.

For the market overall, it means stability rather than growth. Transactions happen, but not at the pace seen in 2020 and 2021. Prices hold or inch up in some segments while staying flat in others.

That's probably the best-case scenario given where debt levels sit. A hot market would push debt higher. A crashing market would trigger distress. Stability lets households gradually deleverage without crisis.

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The Question Nobody Can Answer

Is this Canada's 2007 moment? The honest answer is nobody knows.

The pattern looks similar. Debt peaked after housing peaked. Deleveraging started. But the circumstances are different enough that the outcome could go either way.

If employment stays strong and wages keep growing, Canadian households can work their way out of this debt load over time. The adjustment is painful but manageable.

If unemployment rises sharply or income growth stalls, the debt burden becomes unsustainable. Defaults increase, spending drops, and the economy weakens further in a negative feedback loop.

The US experience shows that high household debt amplifies economic shocks. A recession that might have been mild becomes severe because households can't spend. Consumer spending drives 60% of the economy, and heavily indebted consumers cut spending first.

For now, Canada is navigating the adjustment without major distress. Delinquency rates are rising but remain low by historical standards. Household saving rates hit 7.1% in Q3 2024, the highest in three years, as people rebuild financial buffers.

But the vulnerability is there. The debt exists. The collateral value can fall. The income can disappear. Whether those things happen is the question that determines if this is just a historical parallel or a preview of what comes next.

If you're making real estate decisions in Kelowna or anywhere else in Canada, understanding these debt dynamics helps frame the risk. Household debt levels constrain what buyers can afford, shape how quickly markets can recover, and influence how resilient the economy is to future shocks, and working with the team at Coldwell Banker Horizon Realty means getting guidance that accounts for both market conditions and the broader financial pressures shaping buyer behavior and economic stability in ways that matter for your specific situation.