Canada’s household debt holds near record; growth moderates

Theglobeandmail.com
June 14, 2016
By David Parkinson

Canadian households’ debt burden remained near record levels in the first quarter of this year, as debt growth moderated from the brisk pace of 2015, Statistics Canada reported.

The statistical agency said the household credit market debt-to-disposable-income ratio, the benchmark measure for the average household’s debt burden, was 165.3 per cent in the first three months of 2016, down slightly from the record 165.4 per cent in the final quarter of 2015.

Total credit market debt (mortgages, consumers credit and non-mortgage loans) rose to a record $1.93-trillion, but was up just 0.5 per cent from the prior quarter, the smallest increase in a year, and much slower than the average quarterly rise of 1.6 per cent over the previous three quarters. However, household disposable income also grew at only a modest pace in the quarter, keeping the debt-to-income ratio near its record high.

The first quarter is typically slow for household debt growth, as consumers recover from their holiday-season spending. Statscan said mortgage debt grew 0.7 per cent in the quarter, its slowest in a year, while consumer credit (such as credit cards, car loans and lines of credit) declined 0.3 per cent, its first drop in a year.

The household debt numbers come amid a recent rising tide of public concern about mortgage debt from many quarters, including recent comments from the International Monetary Fund, the Bank of Canada and Finance Minister Bill Morneau, as home prices continue to surge dramatically in the big Vancouver and Toronto markets. In a separate report Tuesday, the closely watched Teranet-National Bank home price index showed that nationally, home prices in Canada rose 1.8 per cent in May from April.

The report said Vancouver posted its 17th consecutive month with a new record high. On an annual basis, Vancouver prices are now up almost 22 per cent, with Hamilton, Victoria and Toronto ringing up gains of 13.8 per cent, 10.8 per cent and 10.6 per cent, respectively. But in most other major centres of the country, home prices are flat to lower year over year.

“The dichotomy continues on the Canadian home resale market,” said National Bank of Canada economist Marc Pinsonneault in a research note.

Statistics Canada said that mortgage liabilities, as a share of total household credit market debt, rose to 65.6 per cent in the first quarter - extending the streak of consecutive quarterly increases that began six years ago.

Statscan also noted that the household debt service ratio - which measures monthly principal and interest payment obligations relative to disposable income - rose to 14.8 per cent in the first quarter, from a reported 13.8 per cent in the previous quarter.

But thanks to rising home prices, total household net worth rose 1.2 per cent quarter over quarter, to a record 9.63-trillion, or $266,900 for every man, woman and child in the country. The ratio of household debt to net worth dipped slightly to 20.3 per cent from 20.5 per cent in the 2015 fourth quarter - a ratio that has been trending generally downward for the better part of five years.

“Debt accumulation is being underpinned by increasingly large mortgages in Vancouver and Toronto, where home prices are rising at a rapid pace against a backdrop of low interest rates and solid economic fundamentals,” said Royal Bank of Canada economist Laura Cooper in a report. “The risks emanating from household financial stress bear close watching, although there is little evidence of deterioration at this stage - stable debt service costs, low mortgage arrears and buoyant home valuations are supporting asset values.”