Two new reports say that Canadians are spending more on everything from mortgages and food to DVD players and cell phones. But while mortgage payments rose an average of seven per cent largely because of higher house prices, low interest rates and strong employment have allowed Canadians to keep up with the payments.

The Canadian Housing Observer 2005, from Canada Mortgage and Housing Corp. and the Survey of Household Spending from Statistics Canada offer a detailed look at 2004 shelter expenses.

The CMHC report says that Canadian household debt has risen steadily during the last 30 years, and its ratio relative to income has increased to more than 100 per cent. But it says "mortgage payments as a share of household income are currently very low by historical standards" due to low interest rates.

"In 2004, the average monthly mortgage payment was $1,337 – two per cent lower than in 1989, the previous peak in inflation adjusted home prices," says the report. "However, from 1989 to 2004, household after-tax income increased by 55 per cent. As a result, the annual mortgage payment-to-income ratio dropped to 31 per cent in 2004 from over 49 per cent in 1989."

CMHC says that at current house prices and after-tax income levels, "the five-year mortgage rate would have to climb to nearly 13 per cent, more than double the rate of 6.1 per cent at the end of 2004, to push the mortgage payment-to-income ratio back up to the 1989 level."

It says, "In other words, Canadians' ability to pay has kept up with the increase in house prices."

The Canadian Housing Observer also has a section entitled, "Why There Is No Housing Bubble In Canada."

"A bubble occurs when an asset experiences price increases well in excess of historical norms for a sustained period of time, based mainly on the speculation that the asset can be sold in the future at a higher price to someone who will buy it for the same reason," says the report. "Although house prices have risen in recent years, Canadian housing markets are grounded in solid economic fundamentals."

It says, "Given the low inflation environment, the financial risk from future mortgage rate increases is very low."

The Statistics Canada report says average spending on shelter in Canada was up by five per cent in 2004 compared to 2003. It says mortgage payments were up by seven per cent, property taxes rose by five per cent, and fuel costs (natural gas and oil) were up by four per cent.

Insurance premiums rose by six per cent. Electricity costs remained unchanged from 2003.

Overall, personal taxes took an estimated 20 per cent of the average household's budget, with shelter costs claiming 19 per cent, transportation 14 per cent, and food 11 per cent.

The people in the lowest income bracket spent more than 30 per cent of their budgets on shelter, while the highest-income group spent 15.6 per cent.

The biggest growth in spending was for new electronic and communication services. Almost seven out of 10 households reported having DVD players, up from 52 per cent in 2003 and only 20 per cent in 2001. Cell phones are also taking up more money, with households spending an average of $340 on them and other wireless services, up 18 per cent from the year before. Spending was down for regular phone services.

Six out of 10 households reported having Internet access in 2004, and the proportion of houses with high-speed access jumped to 43 per cent from 35 per cent. Spending on digital cameras was also up.

Spending on computer hardware was up 11 per cent in 2004, but that was less than the peak of computer spending that was reached in 2000. Statistics Canada says that's a reflection of the continuing decrease in computer prices, which fell 17 per cent in 2004 according to the Consumer Price Index.

About 66 per cent of households subscribe to cable television, a slight drop from 67 per cent in 2004 and 68 per cent in 2001. Satellite television receivers are used by about 22 per cent of households, about the same as the year before. Rentals of videos and DVDs dropped 11 per cent in 2004, while purchases of blank recordable media (CDs, DVDs and tapes) were up by 75 per cent. Four out of 10 households had a CD burner, and 16 per cent had DVD writers.

Households also spent five per cent less money purchasing automobiles (including vans and SUVs). Spending on public transportation, including air fares, rose by 13 per cent.

Published: December 15, 2005

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Jim Adair is editor of REM: Canada's Real Estate Magazine, a business publication for real estate agents and brokers. He is also consulting editor of Homes & Cottages, Canada's largest building and renovation magazine. Email jimhc@pathcom.com.