Canada debt-to-income hits record in Q2 as income growth weak

The ratio of household debt to disposable income rose to 169.85 per cent in the second quarter from 167.37 per cent in the previous quarter.

OTTAWA, Sept 15 Canada’s most expensive housing market braked sharply in August and the nation’s long housing boom had begun to cool, while consumer debt levels hit a new record in the second quarter, separate data showed on Thursday.

Now signs that Canada’s housing market has peaked could herald the start of a consumer retrenchment, with homeowners anxious their houses will not be worth as much as they once were, even as their mortgages remain sky-high. The increase means households owe about $1.68 in credit market debt for every dollar of disposable income. This means total household debt is now greater than Canada’s econmic output. Financial assets grew 1.7 per cent on stronger domestic and foreign securities markets. The Bank of Canada has said the high debt level posed a vulnerability for the financial system, and that the amount of debt compared to disposable income was becoming alarming.

In a recent interview with The Wall Street Journal, Bank of Canada Gov. Stephen Poloz said Canada’s current ultralow rate environment had “absolutely” helped fuel rising house prices and household debt.

On the plus side, low interest rates are keeping a lid on the cost of borrowing.

TransUnion said that while the majority of Canadians will not be materially impacted in the near term by an interest rate increase, there is a “material subset”.

The debt ratios climbed as consumers responded to those tighter mortgage rules by seeking other types of loans.

Canadian net worth jumped to a record high in 2016’s second quarter, but household debt also jumped over that period.

For the first time since the start of 2010, mortgages stopped increasing in the share of total household debt, remaining at 65.6 percent, Statistics Canada said. On a per capita basis, household net worth was C$271,300, up from C$266,900 in the first quarter. At the end of the last decade, the ratio of debt to after-tax income was roughly 148%, or almost 20 percentage points lower than the current level.