Household debt grew faster than Q4 income

O T T AWA • The amount Canadians owe relative to their income ticked higher in the fourth quarter of last year as the growth in debt slightly outpaced income growth, Statistics Canada said Thursday.

The agency reported that seasonally adjusted household credit market debt, as a proportion of disposable income, increased to 178.5 per cent in the fourth quarter. That compared with a revised reading of 178.3 per cent in the third quarter.

That means there was roughly $1.79 in credit market debt for every dollar of household disposable income in the fourth quarter.

Josh Nye, senior economist at Royal Bank, said the figures highlight the challenge consumers face.

“It will take a long period of household incomes outpacing credit growth to deliver meaningful improvement in the debt-to-income ratio,” Nye wrote in a report.

“We’re not yet.”

The household debt service ratio, the total obligated payments of principal and interest on credit market debt as a proportion of household disposable income, increased to 14.9 per cent in the quarter compared with revised reading of 14.7 per cent in the third quarter.

“While we expect the BOC won’t be raising rates again until later this year, the DSR seeing that is still likely to edge higher in the coming quarters as homeowners renew fixed rate loans at higher interest rate,” Nye wrote.

On a seasonally adjusted basis, Statistics Canada said households borrowed $21.2 billion in the fourth quarter as mortgage loan demand rose $2.3 billion to $12.3 billion.

However, despite the increase in the fourth quarter, on an annual basis, household credit market borrowing fell 19.5 per cent to $84.6 billion in 2018, the lowest level of borrowing since 2014.

Credit market debt, which includes consumer credit and mortgage and nonmortgage loans, totalled nearly $2.21 trillion in the fourth quarter.

Mortgage debt reached nearly $1.44 trillion, while consumer credit and nonmortgage loans combined to total $769.4 billion.