Juggling Dynamite

The Hoyes, Michalos 2024 Canadian Joe Debtor Survey is out and available here. The numbers portray Canadian households as increasingly cash-strapped and vulnerable to unexpected shocks or economic weakness.

S0me standouts:

• The average insolvent debtor owed $60,678 in unsecured debt in 2024, an increase of 12.2% from 2023—the largest annual rise since the study began in 2011.
• Driving this surge was a sharp rise in credit card debt, with average balances increasing by 25.9% to $20,398, now accounting for 34% of total unsecured debt.
• Millennials (aged 28 to 43) experienced the steepest increase, with credit card debt climbing 35%.
• Senior debtors (aged 60+) carried the highest average balances at $27,543.
• Insolvent homeowners faced a significant erosion of home equity in 2024, with average equity falling from 21% to 10% and 14% of homeowners experiencing negative equity.
• Vehicle loan shortfalls also re-emerged, with 31% of financed vehicles now underwater—a level not seen since 2016.

Financial stress is projected to intensify in 2025:

“…we expect consumer insolvencies in Canada to rise by 20–30% in 2025, driven by rising unemployment, record-high credit card debt, financial stress from elevated mortgage renewal rates, and challenges in the pre-construction condo market. “

Doug Hoyes discussed their findings on BNN yesterday.

Doug Hoyes, Co-founder of Hoyes, Michalos & Associates, discusses rising household credit card debt as an indicator of the future. Here’s a direct video link.

At the same time, for-sale inventory is exploding in some key Canadian property markets as property-heavy, cash-tight owners look to reduce negative carry. See Toronto home sales fall, inventory surges 70%:

Home sales fell 7.9% to 3,847 units in January, as buyers left the market. At the same time, new listings climbed by 48.6% to 12,393 homes. The sales to new listings ratio (SNLR) plummeted to 31% last month, one of the lowest levels on record. A SNLR at this level is considered an oversupplied market, where prices are expected to fall. Not the case last month, but it will be hard to sustain the trend if the market continues in this direction.

Weak demand and a flood of sellers helped push the total remaining inventory to lofty levels. There were 17,157 active listings in January, an increase of 70.2% from last year. It was one of the best-supplied markets ever for the month.

January isn’t typically a big month for real estate markets, but this one was more interesting than usual. Falling sales wouldn’t be surprising, especially given the turbulence over trade and potential tariffs. However, falling sales and rising prices alongside a massive surge in inventory is not a typical response. It likely indicates that expectations of the mortgage tinkering the Bank of Canada (BoC) warned against are driving the emotions of a handful of buyers who believe the market is set to take off. However, the wall of sellers probably feel like they’re in a completely different market.

The explosion in new listings (yellow below) greatly outstripped resales (in blue) in major population centers, except for Montreal. See RBC report. Sellers set the tone for Canada’s housing markets as 2025 rolls in.

Today we’re speaking with Canadian investigative journalist Sam Cooper, whose deeply researched book Wilful Blindness exposes Canada’s damning role in the opioid trade. This might explain why the Trump administration is going on the offensive with our northern neighbor. Sam’s research uncovers an intricate network where the inputs to make synthetic opioids like fentanyl move from China to Vancouver, where they are processed and released as a plague over all of North America. Meanwhile, the drug money is laundered through casinos, real estate, and Chinese exports. Here is a direct video link.

Human life is full of unforeseen risks every day. Unexpected events are the norm, not the exception. There’s no such thing as certainty. Only daily choices and habits are within our control. But that gives the disciplined a big advantage over the masses, who tend to careen helplessly from one crisis to another.

Contrary to the popular belief that ‘rich people’ pay cash, those with higher-than-average incomes tend to borrow more than average to fund their spending and acquire other assets. Leverage magnifies boom and bust cycles and makes households, lenders, and the entire economy more fragile and vulnerable in a daisy chain of inevitable shocks.

It also creates opportunities for those who understand and anticipate these dynamics with sobriety, patience, low overhead, and cash–a tale as old as time.

For a glimpse under the hood, see After LA Fires Destroyed Mansions, Banks Reckon With Jumbo Loans:

In the affluent Los Angeles neighborhoods scorched by wildfires, jumbo mortgages on multimillion-dollar homes are commonplace, making the loans a potential pain point for the banks left holding them.

More than 72% of mortgage debt fell into the category of nonconforming — also known as jumbo loans — in the parts of Los Angeles devastated by the fires. That’s nearly five times the nationwide average, and almost triple California’s 26% rate, according to a Bloomberg News analysis of Consumer Financial Protection Bureau data. More than $11 billion of jumbo loans were issued in the affected areas and kept on bank books from 2018 through 2023.

…The banks could face a slew of financial and reputational issues — foreclosing on distressed borrowers, trying to recoup losses from insurance companies should homeowners abandon their obligations, selling off the land to investors and eating any losses if they fail to collect the full value of the real estate.

For more timeless insight, see Robert Frank’s 2011 book The High-Beta Rich: How the Manic Wealthy Will Take Us to the Next Boom, Bubble, and Bust.