Q1 household debt remains at near-record levels

Mortgage debt is posed to represent a larger portion of Canadian families’ incomes, according to Statistics Canada

Q1 household debt remains at near-record levels
The amount Canadians owe compared with their income dipped lower in the first quarter of the year, but still stood at near record levels as mortgage debt continued to climb.

In its data release earlier this week, Statistics Canada announced that the amount of household credit-market debt as a proportion of household disposable income slipped to 166.9 per cent in Q1 2017, compared with 167.2 per cent in the fourth quarter of last year.

Household income gained 0.9 per cent, greater than the 0.7-per-cent increase in household credit market debt.

Economists and policy-makers, including the Bank of Canada, have voiced concerns about household debt and identified it as a grave risk to the national economy. Low interest rates have been a key contributor to household debt growth in recent years, but the central bank has recently been hinting that the trend might be changing as the economy has improved.

Royal Bank economist Laura Cooper explained that the cost of servicing debt has remained broadly unchanged in recent years, but sensitivity to rate hikes is likely greater now than when rates have risen in the past.

“Non-mortgage debt tends to command higher borrowing rates and variable payments, leaving households increasingly vulnerable to a looming uptrend in interest rates,” Cooper stated in a report, as quoted by The Canadian Press.

Total debt—which includes consumer credit, and mortgage and non-mortgage loans—totalled $2.041 trillion in the first quarter. Mortgage debt represented 65.7 per cent of that sum, up from 65.6 per cent during Q4 2016.

“While indebtedness has recently stabilized for Canada as a whole, it still remains elevated, leaving households particularly sensitive to rising rates,” TD Bank economist Diana Petramala wrote in a client note. “Moreover, averages do not tell the full story, with risks still rising in Ontario.”

Household net worth at market value rose 2.2 per cent to nearly $10.534 trillion. Households borrowed $27.5 billion on a seasonally adjusted basis in the first quarter, down slightly from $27.6 billion in the previous quarter.

Mortgage borrowing increased $2.7 billion from the fourth quarter to $20.9 billion, while demand for consumer credit and non-mortgage loans declined by $2.8 billion, down to to $6.5 billion.