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

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

FILE
70 per cent of people aged 12 and older in Agassiz-Harrison have been vaccinated

More than 80 per cent of adults aged 50 and older have been vaccinated, as of June 10

Raeya Evie Duncan was the 100th baby born at Chilliwack General Hospital for the month of May. She is seen here with her parents Alysha Williams and Andrew Duncan on June 12, 2021. (Jenna Hauck/ Chilliwack Progress)
Baby boom in Chilliwack as record number of infants born at CGH in May

‘COVID babies are coming out,’ says dad of 100th baby born at Chilliwack General Hospital last month

Agassiz Agricultural Hall hosts COVID-19 vaccination clinics every Wednesday. District officials reported more than 300 doses are administered per week. (Adam Louis/Observer)
Walk-in COVID vaccine clinic scheduled for Wednesday

Walk-in appointments available while supplies last from 3 p.m. to 6 p.m.

Migrating sockeye in the Fraser River August 7, 2007. (Fisheries and Oceans Canada)
First Nations, commercial, and recreational harvesters join forces to save Fraser River fish

‘We have to work together to rebuild these stocks while there is still time,’ says delegate

Dozens of demonstrators gathered in March at the Hope Station House, showing support for preserving the 1916 building. (Photo/Christian Ward)
New reports breathe life into efforts to save the Hope Station House

The documents were presented to District of Hope Council at a meeting June 14

People watch a car burn during a riot following game 7 of the NHL Stanley Cup final in downtown Vancouver, B.C., in this June 15, 2011 photo. THE CANADIAN PRESS/Geoff Howe
10 years ago: Where were you during the 2011 Vancouver Stanley Cup Riots?

Smashed-in storefronts, looting, garbage can fires and overturned cars some of the damage remembered today

(Black Press Media file)
Dirty money: Canadian currency the most germ-filled in the world, survey suggests

Canadian plastic currency was found to contain 209 bacterial cultures

(pixabay file shot)
B.C. ombudsperson labels youth confinement in jail ‘unsafe,’ calls for changes

Review states a maximum of 22 hours for youth, aged 12 from to 17, to be placed in solitary

Eleonore Alamillo-Laberge, 6, reads a book in Ottawa on Monday, June 12, 2017. THE CANADIAN PRESS/Sean Kilpatrick
Parents will need to fight ‘COVID learning slump’ over summer: B.C. literacy experts

Parents who play an active role in educating their children this summer can reverse the slump by nearly 80%, says Janet Mort

Join Black Press Media and Do Some Good
Join Black Press Media and Do Some Good

Pay it Forward program supports local businesses in their community giving

Cannabis bought in British Columbia (Ashley Wadhwani/Black Press Media)
Is it time to start thinking about greener ways to package cannabis?

Packaging suppliers are still figuring eco-friendly and affordable packaging options that fit the mandates of Cannabis Regulations

The border crossing on Highway 11 in Abbotsford heading south (file)
Western premiers call for clarity, timelines on international travel, reopening rules

Trudeau has called Thursday meeting, premiers say they expect to leave that meeting with a plan

The B.C. government’s vaccine booking website is busy processing second-dose appointments, with more than 76 per cent of adults having received a first dose. THE CANADIAN PRESS/Jonathan Hayward
B.C.’s COVID-19 infections, hospitalizations stable for Tuesday

108 new confirmed cases, 139 in hospital, 39 in intensive care

Most Read