Bank Of Canada Should (But Likely Won't) Lower Interest Rates Tomorrow

Canadian households (on average) now spend 15% of their disposable income on paying their debt obligations. From the chart above, however, it is mostly in the form of interest payments. Higher interest rates are the obvious culprit: 

Ironically, It was lower interest rates (driven by the mini-recession with the oil price collapse) in 2015 that ignited a round of borrowing that has resulted in the overburdened household. So it was the Bank of Canada encouraging borrowing (with low rates) and then raising rates in 2017 and beyond that punished those who took the bait.

Principal payments (top chart) have basically gone flat (no longer paying off the underlying debt that drives the interest payable). That might raise the question of whether it is better to buy or to rent (at this moment in time). Especially given the current state of the housing market. The hard lesson for Baby Boomers was that the big surge in demand for houses that drove prices higher in the 1980's crumpled in the early to mid 1990's as interest rates rose. Will the Millennial cohort face the same issues?

With $1.78 of debt to every $1 of income, budgets are tightening and consumers are as stretched as they ever have been. Incomes are not providing enough, growing annually at a very meager 2.2%. Not paying off principal debt will only continue to exacerbate the situation (falling house values against rising debt is a bad combination for the household balance sheet). Households need relief, the economy needs consumers, but the Bank of Canada is reticent to encourage more borrowing by lowering rates, despite an economy that is hovering on the verge of a slowdown that could easily turn recessionary.

What happens if / when the job market turns negative and some households don't have the resources to cover their debt payments?

Talk about a difficult spot to be in.