The following article is a guest post by Dan Greenstein.

Canadian consumer debt as a percentage of after-tax income is at the highest level in history. Stats Canada research indicates that consumer debt including mortgages now exceeds 160% of disposable income, which is about twice the levels seen in 1990. Total Canadian consumer debt is up 7.7% to over $1.5 trillion for the year ending 2014. These statistics bring to the forefront the hot topics of real estate values and mortgage debt, which are at all-time highs and lows, respectively.
Debt to disposable income in Canada is higher than almost all countries, higher than levels Americans experienced before their housing market corrected by 20% starting in 2006, and twice the level seen when Canada endured its only prolonged real estate bear market. This begs numerous questions surrounding the ability of mortgagees to sustain rate increases, the likelihood of a Canadian real estate market correction, and the value to individuals and their net worth of assuming large debt loads.

Though money may make the world go round, it’s debt and not cash that gets treated as a 4 letter word. In reality though, it is debt that makes the world go round. Without it, businesses would be unable to start up or grow, governments would be unable to provide essential services and projects, and first-time home buyers would be unable to afford most housing. Whether current prices and debt levels are sustainable is dependent on numerous factors including interest rates. While historically low rates can’t last forever, there is little suggestion that they will rise either quickly or immediately.

The more important factor is the supply and demand of real estate, especially locally. In rural areas, the ability to increase supply and the lack of demand suggest that those markets will likely underperform. In major urban markets, a rapid influx of condo supply is a big threat to overall prices. But low-rise urban homes will continue to be in short supply, and demand will continue to increase due to population growth.

In a rising rate environment, real estate investors can lock in current rock-bottom rates with 5 and 10 year mortgages. As such, the market continues to be attractive, as long as buyers treat homes as investments. This means examining capitilization rates, seeking or adding rental units to offset market risk, or at minimum adding value through home improvement. When was the last time you were able to add value to a stock or bond certificate?

Even in the much frenzied Toronto market where average detached houses have just eclipsed $1 million, the average year-over-year price increases for the last decade have been a reasonable 6%, and there are still some areas where home prices straddle the average of under $600,000. If you discount all the ultramodern and high-end renovations seen in the city, absolute land values have not increased as much as all the media coverage suggests, and compared to other global and financial capitals, still seem reasonable, if such a term still exists.

Sean Cooper is the bestselling author of the book, Burn Your Mortgage: The Simple, Powerful Path to Financial Freedom for Canadians, available now on Amazon and at Chapters, Indigo and major bookstores, and as an Audiobook on Amazon, Audible and iTunes.