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

Mixed martial arts event comes to Penticton

Xcessive Force Fighting Championship comes to the Penticton Trade and Convention Centre

Come dance between the lakes

Powwow Between the Lakes returns to Penticton Indian Band in August

Award-winning rockers The Glorious Sons to play Kelowna

Fresh off supporting the Rolling Stones in France, the Canadian band will play Prospera Place Nov. 5

B.C. Wine Info Centre feeling the impact of striking casino workers

The casino isn’t the only Penticton business feeling the brunt of the strike action

Tailgate Party celebrates Naramata’s early roots

South Okanagan wineries located on the Naramata Bench host their annual party

Trudeau asks transport minister to tackle Greyhound’s western pullout

Prime Minister Justin Trudeau says he’s asked Transport Minister Marc Garneau to find solutions in Greyhound Canada’s absence.

Usain Bolt to make run at pro soccer in Australia

Olympic sprint great has long expressed his love of the game

Kelowna shooting victim remains in hospital

The woman injured in Friday’s shooting remains in hospital according to police

Duchess of Sussex wears dress by Calgary’s Nonie to Mandela exhibition

Nonie is believed to be the first Canadian based ready-to-wear designer for the duchess

Amazon’s hopes its Prime Day doesn’t go to the dogs

Shoppers clicking on many Prime Day links after the 3 p.m. ET launch in the U.S. got images of dogs

Alberta man drowns in Mara Lake near Sicamous

The 26-year-old man’s body was retrieved on July 16

Trudeau blasts Putin, Russia following Finland summit but stays mum on Trump

Strong words come one day after a controversial summit between Putin and Trump in Finland

Temperature records break across southern B.C. as heat continues

Whistler broke a 70-year-old record high of 32.2 C with a temperature of 32.9 C

Most Read