House­hold debt ra­tio climbs to record high in Q2

Edmonton Journal - - FINANCIAL POST -

OTTAWA The amount Cana­di­ans owe com­pared with their dis­pos­able in­come hit a record high in the sec­ond quar­ter as per capita house­hold net worth inched lower.

Sta­tis­tics Canada said Fri­day house­hold credit mar­ket debt as a pro­por­tion of house­hold dis­pos­able in­come in­creased to 167.8 per cent, up from 166.6 per cent in the first quar­ter.

That means for ev­ery dol­lar of house­hold dis­pos­able in­come there was $1.68 in credit mar­ket debt.

The in­crease in the debt ra­tio came as house­hold net worth on a per-capita ba­sis fell by $1,300 to $285,900.

“A de­cline in house­hold net worth, al­beit mod­est, along­side a sharp in­crease in con­sumer credit growth are no­table as to­gether they sug­gest that the abil­ity of house­holds to ab­sorb higher in­ter­est rates con­tin­ued to de­te­ri­o­rate,” RBC econ­o­mist Laura Cooper wrote in a re­port.

House­hold debt has been iden­ti­fied as a key risk for the econ­omy as low in­ter­est rates have made it eas­ier for Cana­di­ans to bor­row money.

How­ever, rates have started to climb in re­cent months.

The Bank of Canada has raised its key in­ter­est rate twice since the end of the sec­ond quar­ter, a move that has prompted the big Cana­dian banks to raise their prime rates which are used for vari­abler­ate mort­gages and other loans like lines of credit.

Bond yields have also climbed in re­cent months, push­ing rates for new fixed-rate mort­gages higher.

“Go­ing for­ward, the spend­ing en­vi­ron­ment — for con­sumers, busi­nesses and gov­ern­ments — will be­come more chal­leng­ing in light of the re­cent in­ter­est rate hikes by the Bank of Canada,” TD Bank econ­o­mist Dina Ign­ja­tovic wrote in a re­port.

“With ad­di­tional hikes likely in the pipe­line, there will be some fur­ther de­te­ri­o­ra­tion in the debt ser­vice ra­tio in the com­ing quar­ters.”

The in­crease in the debt-to-in­come ra­tio came as house­hold in­come in­creased 1.2 per cent while house­hold credit mar­ket debt rose 1.9 per cent.

To­tal house­hold credit mar­ket debt, which in­cludes con­sumer credit, mort­gage and non-mort­gage loans, to­talled nearly $2.08 tril­lion in the sec­ond quar­ter.

Mort­gage debt in­creased 1.6 per cent to $1.36 tril­lion, while con­sumer credit grew 2.4 per cent to $609.6 bil­lion.

The house­hold debt ser­vice ra­tio, the to­tal ob­li­gated pay­ments of prin­ci­pal and in­ter­est as a pro­por­tion of house­hold dis­pos­able in­come, was flat at 14.2 per cent in the sec­ond quar­ter.

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