The Globe & Mail, Dec 14, 2015 -
Canada’s household debt burden hit another record high in the third quarter of 2015, as Canadians’ debts grew faster than their incomes.
Statistics Canada reported that the ratio of household credit-market debt to disposable income rose to 163.7 per cent in the three months ended Sept. 30, up from 162.7 per cent in the second quarter. It marked the highest-ever reading in this key ratio for gauging consumer debt loads, topping the previous record of 163 per cent in the fourth quarter of 2014.
Statscan said debt rose 1.4 per cent in the quarter, while disposable income increased by 0.8 per cent.
Total credit-market debt reached $1.89-trillion in the third quarter, also a record. Mortgage debt made up $1.23-trillion of that, while consumer credit (which includes credit cards, car loans, personal lines of credit and other personal loans) totalled $572-billion.
Households borrowed $19.4-billion in the quarter, down from $22.7-billion from the pace of new borrowings in the second quarter. Most of that was new mortgage debt, which totalled $15.6-billion, while new consumer credit was $3.7-billion.
Canada’s household debt loads have been bumping up against record levels for years now, spurred on by years of historically low interest rates and rising residential real estate prices. The Bank of Canada, the federal government and many economists have long been concerned about the trend, as consumers look particularly exposed to risk in the event of an economic shock or significant downturn.
Twice this year, the Bank of Canada has cut its key interest rate in order to stimulate Canada’s sluggish economy, which has kept downward pressure on lending rates and thus encouraged borrowing. But last week, the federal government announced tighter rules on mortgage lending, aimed at cooling the debt risk related to the housing sector.
“The effects of stimulative monetary policy working through the economic system, as well as resilient labour markets year-to-date, were evident,” said Royal Bank of Canada economist Laura Cooper in a research note. But she added that Ottawa’s new mortgage rules “have the potential to dampen the pace of accumulation in the mortgage component and resultantly, could alter the dynamics of the evolution of household imbalances going forward.”
Statscan noted that the ratio of household debt to total assets – considered by some experts to be a better measure of consumers’ capacity to afford their debts – rose to 17 per cent from 16.9 per cent. This measure had been trending steadily downward since the end of the 2009 recession but has now risen for a second straight quarter.
The national household debt service ratio – a measure of total debt payment obligations as a proportion of disposable income, an indicator of consumers’ ability to meet their monthly payments – dipped to 13.6 per cent in the third quarter from 14.1 per cent in the second quarter, although it remained above its historical average of 12.4 per cent.
Total household net worth edged up 0.4 per cent to $9.35-trillion, reflecting the continued strength in real estate values in key markets. But the credit-market-debt-to-net-worth ratio edged up to 20.2 per cent, its second straight increase.
Total national wealth – the total value of non-financial assets in the Canadian economy – slipped $190.4-billion to $9.21-trillion in the quarter. The decline was due to a $285.4-billion drop in the value of resource assets, reflecting weaker energy prices, Statscan said. The value of residential real estate rose $48.7-billion.