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debt: canada’s borrowing binge

Shoes belonging to potential buyers are left at the entrance of a house listed for sale for $4.99-million in the neighbourhood of Shaughnessy, during an open house in Vancouver, B.C., on Saturday April 25, 2015.DARRYL DYCK/The Globe and Mail

This is part of a Globe series that explores our growing dependence on credit – from the average household to massive institutions – and the looming risks for a nation addicted to cheap money. Join the conversation on Twitter with the hashtag #DebtBinge

163.3 per cent.

That's the ratio of the accumulated stock of household debt in Canada in the final quarter of 2014, relative to annual disposable household income.

It is now at an all-time high, rekindling fears there may be a dangerous debt bubble in this country.

Frequently cited and much feared, the quarterly debt-to-income ratio is the go-to statistic for experts trying to figure out just how wobbly the housing market might be.

Unfortunately, it's a calculation that may hide more than it tells us about what's really going on.

"Everybody knows this number. It's one number – a catch-all – and it is almost meaningless," argued Benjamin Tal, an economist at CIBC World Markets.

There are several countries where the ratio is in excess of 200 per cent, and they're coping just fine, Mr. Tal pointed out.

The biggest problem is that the ratio reveals almost nothing about the people who actually have debt. It compares the accumulated debt to the incomes of all Canadians, many of whom have no debt at all. And it implies that borrowers don't have enough income to pay off their debts all at once, even though mortgages and other loan contracts provide for gradual repayment over time.

Even as a measure of the expansion or contraction of household borrowing, it's a dubious barometer. Credit typically grows faster than income when the economy is expanding at a healthy clip. But the ratio can also rise when incomes are stagnant.

The over-reliance on the debt-to-income measure is just one example of the lack of good and timely data on household debt in Canada, compared with other countries, most notably the U.S.

"You have to go much deeper," said Mr. Tal, who last year issued a controversial report on the data gap in Canada's mortgage market, titled Flying Blind.

"This is a very complex market. Those indicators that many people use are really not telling you what's happening."

Among other things, there is no monthly or quarterly data on new mortgages, including how much equity borrowers have in their homes. And there is incomplete data on the size of the fast-growing sub-prime mortgage market.

It's not that this information doesn't exist. It does. The problem is that lenders don't share it and authorities don't collect it on a timely basis, leaving investors with an incomplete picture of the mortgage market.

The good news, according to Mr. Tal, is that his 2014 report helped sparked discussions between lenders, the Canada Mortgage and Housing Corp. and regulators, such as the federal Office of the Superintendent of Financial Institutions. He said CMHC is now tracking the level of foreign investment in the housing market, while credit bureaus are compiling and sharing more credit-score data on borrowers taking out higher-risk insured mortgages.

"Having all the information does not guarantee you will not crash. The U.S. has wonderful information and they still crashed," Mr. Tal pointed out. "But it's a good place to be, to know where you are going."