Canadians’ debt ratio dips but still near record high

The amount Canadians owe compared with their income ticked lower in the first quarter (Q1) of 2017, but remained near record levels as mortgage debt continued to climb, according to Statistics Canada (StatsCan).

The amount of household credit market debt as a proportion of household disposable income slipped to 166.9% in Q1 compared with 167.2% in the fourth quarter of last year.

That means that for every dollar of disposable income, Canadians owe about $1.67 in debt.

Economists and policy-makers, including the Bank of Canada (BoC), have raised concerns about household debt and see it as a key risk to the economy.

Low interest rates have fuelled the growth in household debt in recent years, but the central bank has started dropping hints that may be changing as the economy has improved.

Canadians should be thinking about what their finances would look like were interest rates to rise, said BoC Governor Stephen Poloz this week.

Royal Bank of Canada economist Laura Cooper said the cost of servicing debt has remained broadly unchanged in recent years, but households’ sensitivity to rate hikes is likely greater now than when rates have risen in the past.

“Non-mortgage debt tends to command higher borrowing rates and variable payments, leaving households increasingly vulnerable to a looming uptrend in interest rates,” Cooper wrote in a report.

Household income rose by 0.9%, StatsCan reported, greater than the 0.7% increase in household credit market debt.

Total debt, which includes consumer credit, and mortgage and non-mortgage loans, totalled more than $2 trillion in Q1. Mortgage debt represented 65.7% of that, up from 65.6% during Q4 2016.

“While indebtedness has recently stabilized for Canada as a whole, it still remains elevated, leaving households particularly sensitive to rising rates,” wrote Toronto-Dominion Bank economist Diana Petramala in a note to clients. “Moreover, averages do not tell the full story, with risks still rising in Ontario.”

Household net worth at market value rose 2.2% to more than $10.5 trillion. Households borrowed $27.5 billion on a seasonally adjusted basis in Q1, down slightly from $27.6 billion in the previous quarter.

Mortgage borrowing increased by $2.7 billion from Q4 2016 to $20.9 billion, while demand for consumer credit and non-mortgage loans fell $2.8 billion to $6.5 billion.

StatisCan’s report came as the Teranet National Bank national composite house price index, which measures homes sold at least twice in their history, hit a new all-time high for a 16th consecutive month. The index rose by 2.2% last month, the largest gain for May in the index’s 19-year history.

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