Cana­di­ans start to ease up on house­hold debt.

Fig­ures sug­gest risks are mod­er­at­ing

National Post (Latest Edition) - - FINANCIAL POST - GreG Quinn Bloomberg

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-per-cent 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 al­most four years. Dis­pos­able in­come in­creased 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, debt­fu­elled hous­ing boom are mod­er­at­ing, clearing the way for the Bank of Canada to con­tinue in­creas­ing in­ter­est rates to more nor­mal lev­els. Gov­er­nor Stephen Poloz has al­ready lifted rates three times since last sum­mer and in­vestors pre­dict he’ll hike again at the July 11 meet­ing.

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 pol­icy-mak­ers 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 de­clined 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 while fi­nan­cial-mar­ket risks linked to con­sumer fi­nances are eas­ing, the sheer size of the debt means the ten­sions will per­sist for some time. Statis­tics Canada fig­ures showed over­all house­hold bor­row­ing re­mains above $2 tril­lion, about equal to the coun­try’s gross do­mes­tic prod­uct.

Robert Hogue, se­nior econ­o­mist at Royal Bank of Canada, said even though the coun­try’s debt ser­vice ra­tio has re­mained sta­ble, he ex­pects it to come un­der “up­ward pres­sure” in the pe­riod ahead.

“In our view, this will be a key fac­tor re­strain­ing house­hold spend­ing growth this year,” Hogue wrote in a note to clients. “It will also be an el­e­ment keep­ing the Bank of Canada cau­tious about rais­ing rates.”


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