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

Volunteers organize annual clean up of illegal dumping sites

Waste found by Copper River included an abandoned RV, leaking batteries

Terrace’s “free store” reopens following generous donation

Ksan Society’s donation room will run again until April 2020

Terrace residents take council to task for safer active transportation

Cyclists, pedestrians press city to take action on past commitments

Firefighters burn cops in Guns and Hoses game

Annual tournament saw a 10-5 win, $12,000 raised for charity

LETTER: LNG’s mistakes will affect us too

Dear Editor, Regarding the Nov. 7 issue’s article on Top Speed Energy… Continue reading

B.C. politicians view supermodel’s transition journey on Transgender Day

Liberal MLA Jane Thornthwaite and New Democrat MLA Spencer Chandra Herbert appear in the documentary

John Mann, singer and songwriter of group Spirit of the West dead at 57

Mann died peacefully in Vancouver on Wednesday from early onset Alzheimer’s

VIDEO: B.C. high school’s turf closed indefinitely as plastic blades pollute waterway

Greater Victoria resident stumbles on plastic contamination from Oak Bay High

B.C. mayor urges premier to tweak road speeds in an ‘epidemic of road crash fatalities’

Haynes cites ICBC and provincial documents in letter to John Horgan

South Cariboo Driver hits four cows due to fog

The RCMP’s investigation is ongoing

B.C. won’t appeal decision protecting ICBC court experts

Change to evidence rules next to save money, David Eby says

1898 Yukon gold rush photo featuring Greta Thunberg look-alike sends internet into tailspin

Jokes erupted this week after a 120-year-old photo taken by Eric A. Hegg surfaced from archives

BC Ferries’ two new hybrid vessels set sail for B.C. from Romania

Two Island Class ferries to be in use by 2020

Distracted driving tickets not for ICBC revenue, B.C. minister says

Minister Mike Farnworth calls SenseBC analysis ‘nonsense’

Most Read