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

Purple Day marks long journey for Gorge resident

Legislative Assembly to recognize epilepsy on Tuesday

Have your say at Oak Bay Budget Open House

Talk to council, staff on taxation, proposed new initiatives and budget process

Increasing cloudiness with a high of 12 C for today

A look ahead at this week’s forecast

West Shore RCMP better than municipal police forces, mayors say

West Shore municipalities funding more officers and civilians at local detachment

More people are hauling themselves to Greater Victoria

Victoria ranks second in U-Haul’s migration survey, behind Kingston

Mueller finds no Trump collusion, leaves obstruction open

But while Mueller fully ruled out criminal collusion, he was more circumspect on presidential obstruction of justice

Ice climbers scale Canada’s tallest waterfall on Vancouver Island

Ice climbers Chris Jensen, Will Gadd and Peter Hoang made history

Tofino woman beseeches town for nude beach

“They may enjoy a surf and then walk around naked and just be free.”

Sparks fly as SUV speeds down wrong side of Highway 1 trying to flee RCMP

Captured on video, the vehicle headed westbound against oncoming traffic before crashing

Fundraising campaign launched for man caught in SilverStar avalanche

In only two days, the GoFundMe surpassed its $15,000 goal

B.C. doctor reprimanded for accessing medical records without consent

Doctor admits to accessing records of the woman carrying his child

Video service to compete with Netflix, Amazon expected from Apple on Monday

The iPhone has long been Apple’s marquee product and main money maker, but sales are starting to decline

Kootenay city councillor starts nationwide climate caucus for municipal politicians

Climate Leadership Caucus has 57 members including seven mayors

Edmonton judge to rule on whether Omar Khadr’s sentence has expired

Canada’s top court ruled punishment handed Khadr for alleged acts committed in Afghanistan when he was 15 was to be a youth sentence

Most Read