Canadians’ Household Debt Ratio Sees Biggest Drop On Record

OTTAWA — The amount Canadians owe relative to their income crept lower for the second quarter in a row as mortgage borrowing slowed along with a cooler housing market.

Statistics Canada said Thursday household credit market debt was equal to 168.0 per cent of household disposable income in the quarter, its lowest level since the first quarter of 2016.

In other words, there was $1.68 in credit market debt for every dollar of household disposable income.

The result for the quarter compared with 169.7 per cent in the fourth quarter of last year.

“While the ratio generally tends to fall in the first quarter due to seasonality, the 1.68-percentage point decline marks the biggest improvement on record,” wrote economic analyst Priscilla Thiagamoorthy of BMO Capital Markets.

Watch: Why strong economies spell bad news for Canadian mortgage rates (story continues below)

“The steeper drop to start 2018 suggests we may finally be at a turning point as the one-two punch of stricter mortgage rules and higher interest rates slow household borrowing, while income continues to climb.”

The Bank of Canada has identified household debt as a key vulnerability for the financial system, but the central bank noted that risk has lessened in recent months along with worries about the housing market.

On a seasonally adjusted basis, households borrowed $22.2 billion in the first quarter, down from $25.4 billion in the previous quarter. Statistics Canada said mortgage borrowing fell $2.0 billion to $13.7 billion, the lowest level since the second quarter of 2014.

Earlier on HuffPost Canada:
Canada’s Millennials Pull Way Back On Mortgage BorrowingNearly Half Of Canadians Say They Will Have To Borrow To Pay The Bills This Year

The slowdown came as tighter lending rules and higher mortgage rates helped cool the housing market in recent months compared with its torrid pace at the start of last year.

Royal Bank senior economist Robert Hogue said with growth in both mortgage and non-mortgage debt slowing, debt metrics should continue to improve in the near term.

“Developments in the last two quarters are unlikely to change the conversation about household indebtedness in Canada entirely though they are enough to alter its tone,” he wrote in a report.

Hogue noted as interest rates rise how Canadians manage their debt service costs will be important.

Debt payments remain stable

Statistics Canada said the seasonally adjusted household debt service ratio, measured as total obligated payments of principal and interest as a proportion of household disposable income for

Source:: The Huffington Post – Canada Travel


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