OTTAWA — Millennials and Generation X young adults are likely to face economic difficulties in the coming months, bank RBC has warned.
In an analysis released Wednesday, the bank said Canadians aged 35 to 44 with debt had a debt-to-income ratio of 250% in 2019, down from 150% a decade earlier. The situation of the under-35s is also precarious, with a debt-to-income ratio of 165%.
And those numbers have only increased over the past four years, as Statistics Canada overall reports that the debt-to-income ratio for Canadians of all ages was 184.5% in the first quarter of this year, up from 181.7% in the previous quarter.
However, homeowners who need to renew their mortgages in the coming months will see their monthly payments increase by 25% due to the rapid rise in interest rates in early 2024, RBC estimates.
gap between the generations
The bank warns that the impact on young owners will be far more severe than on older owners, whose overall debt ratio is significantly lower. By comparison, only 14% of baby boomers still have a mortgage to pay off, and for those who do have a mortgage, it’s on average half that of millennials, RBC points out.
It must be said that according to federal data, Millennials on average outnumber Baby Boomers (22.3%) slightly (23.3%) in Canada’s six major urban centers with populations of more than one million people (22.3%), thereby outnumbering Baby Boomers in Canada Montreal and Ottawa-Gatineau, as well as in Toronto and Vancouver, cities where real estate is more expensive than elsewhere.
To make the generation gap worse, boomers have amassed a comfortable investment cushion that allows them to thrive on rising interest rates. RBC emphasizes that two-thirds of baby boomers are no longer dependent on an income from work, but on private pension funds and state transfer payments.
Towards a rise in unemployment
Conversely, young homeowners are entirely reliant on labor income, which, while rising since the pandemic began, has not kept pace with the rise in interest rates: “The average hourly wage is up 12%, less than half the rise in five-year fixed-rate mortgage rates” , notes RBC.
Moreover, those wages that have not been able to keep up with the rise in house prices could disappear for many young people in the coming months as more and more companies are forced to slow down to meet the rise. Interest rates: CIBC forecast in a report published Tuesday that the unemployment rate will climb above 6 percent by early 2024.
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