Canadians ease up on debt binges, housing cools

OTTAWA Canada’s debt to disposable income ratio declined by the most on record in the first quarter, boosting confidence the country ’s households can handle higher borrowing costs.

The ratio fell to 168 per cent in the first three months of 2018, from 169.7 per cent in the prior period, Statistics Canada said Thursday. The 1.7-percentage point decline was the most in data back to 1990, and follows an almost continual run of increases to a record 170 per cent in the third quarter of 2017.

Credit-market debt rose just 0.3 per cent January to March, reflecting the lowest volume of mortgage borrowing in nearly four years. Disposable income rose 1.3 per cent.

Meanwhile, a separate Statistics Canada report showed the country’s new housing price index was flat in April, and Toronto prices posted the first 12-month decline since 2009.

The figures suggest risks from the decade-long, debt-fuelled housing boom are moderating, clearing the way for the Bank of Canada to continue increasing interest rates to more normal levels.

Moderating housing costs “will give the Bank of Canada breathing room to maintain a gradual pace of tightening,” Andrew Kelvin, senior Canada rates strategist at Toronto Dominion Bank in Toronto, said in an email.

Real estate executives and policymakers have said mortgage growth should slow this year after tougher federal rules took effect. Some buyers have also been deterred by high prices in Vancouver and Toronto, and by higher borrowing costs.

Mortgage borrowing fell by $2 billion to $13.7 billion in the first quarter, compared with the prior three-month period, Statistics Canada said.

Home price overvaluation in Toronto has been easing and the risk of a price bust across the province of Ontario has faded to “low,” from “moderate” last year, Canada Mortgage and Housing Corp. said Thursday. The federal housing agency also said Ontario’s rising population and incomes should support home prices after some weakness early this year.

Toronto’s new-home price index fell 0.5 per cent in April from March, the fourth straight decline. In Vancouver prices have been flat for four straight months.

Still, dangers remain. Poloz said last week that the sheer size of the debt means the tensions will persist for some time.