Debt-to-household-income ratio rises in third quarter

Total household credit market debt grew to $2.11 trillion in the third quarter

Sky-high debt loads are one of the central bank governor’s top concerns after the amount Canadians owe relative to their income hit a new high in the third quarter, newly released data shows.

Statistics Canada reported that household credit market debt as a proportion of household disposable income increased to 171.1 per cent, up from 170.1 per cent in the second quarter. That means there was $1.71 in credit market debt, which includes consumer credit and mortgage and non-mortgage loans, for every dollar of household disposable income.

Bank of Canada governor Stephen Poloz said in a speech in Toronto that high debt levels are one of the things that keeps him awake at night because they make the economy as a whole more sensitive to higher interest rates than in the past.

“These vulnerabilities are elevated, and are likely to remain so for a long time,” he said.

“Remember, it took years for these vulnerabilities to build up in the first place.”

The central bank has raised interest rates twice this year due to the strong economy. Since the second increase in September, it has held the rate steady signalling it will proceed with caution.

Benjamin Reitzes, Canadian rates and macro strategist at the Bank of Montreal, said the upward trend in household debt continues unabated.

“And, with homebuyers rushing to get into the market ahead of the new OSFI rule change that takes effect on Jan. 1, 2018, we could see a further increase in Q4,” Reitzes wrote in a report.

“However, that suggests we could see some flattening out of the ratio in 2018 — though don’t bet on it as housing has been persistently resilient.”

Household debt is often cited as a key risk to the Canadian economy by the Bank of Canada and others.

In a report last month, the OECD said high house prices and associated debt levels remain a substantial financial vulnerability in Canada.

“A disorderly correction would adversely impact growth and could threaten financial stability,” the organization said.

Statistics Canada said the household debt service ratio, measured as total obligated payments of principal and interest as a proportion of household disposable income, was relatively flat at 13.9 per cent, while the interest-only debt service ratio was 6.3 per cent, down from 6.4 per cent in the previous quarter.

The Bank of Canada has raised its key interest rate target twice this year, moves that have led to increases in the prime rates at the country’s big banks used to set loans like variable-rate mortgages.

Royal Bank economist Josh Nye noted the debt service ratio will increase as the Bank of Canada continues to gradually raise interest rates.

“However, the prevalence of fixed rate mortgage debt means households won’t feel the increase all at once,” Nye wrote.

“Rather, as today’s data showed, the debt service ratio is likely to rise only gradually.”

Total household credit market debt grew to $2.11 trillion in the third quarter, up 1.4 per cent from the previous quarter. The increase came as mortgage debt increased 1.5 per cent to $1.38 trillion, while consumer credit rose 1.2 per cent to $620.7 billion.

Meanwhile, the total net worth of the household sector edged down 0.1 per cent to $10.61 trillion in the third quarter.

The move lower was due to a drop in home values as housing resale prices weakened. The value of household financial assets edged up 0.1 per cent.

Craig Wong, The Canadian Press

Like us on Facebook and follow us on Twitter.

Just Posted

SkyTrain for Surrey wants LRT pulled from Mayors’ Council plan

Mayor Linda Hepner rejects any notion that the project can wait

Four years for manslaughter in Surrey drive-by shooting

Mahdi Halane was rendered a quadriplegic until his death in hospital six years later at age 24.

Author at Surrey event glad to have book published ‘before reality totally overtakes fiction’

Ari Goelman, a business and criminology instructor, speaks at KPU Reads gathering Jan. 22

South Surrey overpass repairs to get underway in February

Schedule for Bailey bridge work also announced

White Rock cannabis and adult entertainment bylaws to move to public hearings

Council will seek input on potential of allowing contentious businesses in city limits

Simulated whale rescue on White Rock beach

Training endeavour aimed to ready crews for future strandings

Trump aces mental aptitude test designed by Canadian immigrant

“This is a good example, I think, that will be helpful to change views about immigration. And maybe for Mr. Trump himself to consider immigrants as contributors to advancing science, advancing our societies.”

Rival Koreas agree to form first unified Olympic team

The rival Koreas took major steps toward reducing their bitter animosity

Canada, U.S. lead call for sanctions against North Korea

Foreign ministers from 20 countries are meeting in Vancouver to discuss security and stability on the Korean Peninsula

Federal NDP Leader Jagmeet Singh announces engagement

Federal NDP Leader Jagmeet Singh engaged to clothing designer Gurkiran Kaur

Hijab-cutting case highlights ethical issues with putting kids in spotlight

A Toronto police investigation has concluded a girl’s hijab was not cut by a scissors-wielding man as she walked to school

Change in politics, society on sexual misconduct ‘not fast enough,’ says Trudeau

Trudeau says society still lagging behind the systemic changes he is trying to make when it comes to preventing and responding to sexual harassment

Bank of Canada to make interest rate decision today

Economists widely believe that based on the economic environment, it’s likely interest rates will rise today

Body discovered in burnt out car near Trail

Police report a body was found in the burnt out trunk of a 1999 Honda Civic

Most Read