Canadians are getting the message on debt. This is according to a Globe and Mail article. The full text can be found here, or just read on.

After months of warnings from senior officials like Bank of Canada Governor Mark Carney, consumers are pulling back on their borrowing. In particular, the rate at which they are racking up new mortgage debt has slowed, according to a new analysis by Canada Mortgage and Housing Corp., a phenomenon that is partly caused by a cooling housing market.

Many economists, as well as groups such as the Organization for Economic Co-operation and Development, have cited record consumer debt levels as a key risk to the Canadian economy. The average Canadian household has debt that is 150 per cent of income, and mortgage debt accounts for the largest chunk of credit that Canadian consumers hold.

CMHC, the federal Crown corporation that is at the heart of the country’s housing market, said Tuesday that household debt remains a concern but there are encouraging signals. “At the moment, there is little evidence of a significant overvaluation in the Canadian housing market over all, although some centres warrant close monitoring.”

In addition to the mortgage slowdown, the growth in personal loans, lines of credit and credit cards has also levelled off in recent months, the agency said. It’s a sign that, despite low interest rates, Canadians are starting to feel less secure about borrowing and the direction real estate markets are headed, said Benjamin Tal, an economist at CIBC World Markets. “I think it’s a very positive trend – very consistent with my view that the housing market over the next few years will stagnate.”

The CMHC’s comments come days after Finance Minister Jim Flaherty said there is evidence that Canadians are paying down their mortgages faster.

But with interest rates and consumer borrowing costs remaining at record lows, and the outlook for the economy softening owing to Europe’s sovereign debt crisis, Ottawa continues to walk a tightrope between allowing consumer spending to stoke the economy and reminding Canadian borrowers to be prudent. On Friday, Mr. Flaherty once again warned homeowners to be mindful of the fact that low interest rates will not last forever.

According to the most recent data from the Bank of Canada, chartered banks in this country had $68.3-billion in personal loans outstanding in October, up from $67.7-billion in August but compared with $61.5-billion in October of last year. Credit card balances grew to $62.4-billion from $62.2-billion between August and October, and compared with $57.3-billion last October. Lines of credit rose to $229.8-billion from $227.4-billion, up from $218.9-billion a year ago.

Mortgage assets held by the chartered banks, meanwhile, hit $563.5-billion in October, up from $561.2-billion in August. But, illustrating how growth has slowed, that number was $500.2-billion in October, 2010.
Consumer caution will be a positive for the real estate sector because it lays to rest concern of an overheated market and the risk of a bubble popping, said Jim Murphy, chief executive officer of the Canadian Association of Accredited Mortgage Professionals.

“We’ve had all these discussions about a bubble, but the market is stable,” he said. “We have in most markets in the country real estate prices increasing at a measured pace.”

Glen Hodgson, chief economist at the Conference Board of Canada, said consumer confidence appears to be sinking with turmoil in the world economy.

“There’s no particular surprise that the demand for housing has slowed down a bit, along with the economy. I mean, people are nervous right now, and that tends to have an impact on their major purchases.”

However, he said there are also no signs that Canada’s housing market is destabilizing, and prices are still “pretty solid” in most markets. “We see the market as pretty much in balance if you go city by city,” he said.