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

Business for Sea Otter Eco Tours tripled in 2019

The Eco Tours season runs from May 1 to Oct. 1.

Community volleyball at PHSS

The program was formed for the community and in the hopes of getting youth off of the street.

Port McNeill Library release five-year plan

VIRL recently released its vision and operating plan for 2020 through to 2024/25.

Port Hardy awarded ‘Level 4’ recognition by Green Communities Committee

District awarded Level 4 recognition - ‘Achievement of Carbon Neutrality’.”

2019 FEDERAL ELECTION: North Island-Powell River candidates address other issues of importance

“Other than the topics already discussed, what is the most important issue in your constituency?”

VIDEO: #MeToo leader launches new hashtag to mobilize U.S. voters

Tarana Burke hopes to prompt moderators to ask about sexual violence at next debate

UPDATE: British couple vacationing in Vancouver detained in U.S. after crossing border

CBP claims individuals were denied travel authorization, crossing was deliberate

After losing two baby boys, B.C. parents hope to cut through the taboo of infant death

Oct. 15 is Pregnancy and Infant Loss Awareness Day in B.C.

Cheating husband sues mistress for gifted ring after wife learns about affair

The husband gave his mistress $1,000 to buy herself a ring in December 2017

B.C. massage therapist reprimanded, fined for exposing patients’ breasts

Registered massage therapist admits professional misconduct

B.C. boosts legal aid funding in new payment contract

‘Duty counsel’ service restored in some communities, David Eby says

Rugby Canada helps recovery efforts in Japan after typhoon cancels final match

Canadian players wanted to “give back in whatever small way they could”

VIDEO: Bear spies on cyclists riding by on Campbell River street

Riders seem unaware the bruin is mere feet away on the side of the road

Two Cowichan Tribes families devastated by duplex fire

Carla Sylvester sat in her vehicle, on Tuesday morning, with tears in… Continue reading

Most Read