House­hold debt ra­tio down

The Daily Observer - - NATIONAL NEWS - CRAIG WONG

OTTAWA — The amount Cana­di­ans owe rel­a­tive to their in­come posted its largest de­cline on record in the first quar­ter as mort­gage bor­row­ing slowed along with a cooler hous­ing mar­ket.

Sta­tis­tics Canada said Thurs­day house­hold credit mar­ket debt was equal to 168.0 per cent of house­hold dis­pos­able in­come in the quar­ter, its low­est level since the first quar­ter of 2016.

The ra­tio, which com­pared with 169.7 per cent in the fourth quar­ter of last year, recorded its largest de­cline since the agency started track­ing the mea­sure in 1990.

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

“While the ra­tio gen­er­ally tends to fall in the first quar­ter due to sea­son­al­ity, the 1.68-per­cent­age point de­cline marks the big­gest im­prove­ment on record,” eco­nomic an­a­lyst Priscilla Thi­ag­amoor­thy of BMO Cap­i­tal Mar­kets said.

“The steeper drop to start 2018 sug­gests we may fi­nally be at a turn­ing point as the one-two punch of stricter mort­gage rules and higher in­ter­est rates slow house­hold bor­row­ing, while in­come con­tin­ues to climb.”

The move came as dis­pos­able in­come in­creased 1.3 per cent, while credit mar­ket debt rose 0.3 per cent.

The Bank of Canada has iden­ti­fied house­hold debt as a key vul­ner­a­bil­ity for the fi­nan­cial sys­tem, but the cen­tral bank noted that risk has less­ened in re­cent months along with wor­ries about the hous­ing mar­ket.

On a sea­son­ally ad­justed ba­sis, house­holds bor­rowed $22.2 bil­lion in the first quar­ter, down from $25.4 bil­lion in the pre­vi­ous quar­ter. Sta­tis­tics Canada said mort­gage bor­row­ing fell $2.0 bil­lion to $13.7 bil­lion, the low­est level since the sec­ond quar­ter of 2014.

The slow­down came as tighter lend­ing rules and higher mort­gage rates helped cool the hous­ing mar­ket in re­cent months com­pared with its tor­rid pace at the start of last year.

Royal Bank se­nior econ­o­mist Robert Hogue said with growth in both mort­gage and non-mort­gage debt slow­ing, debt met­rics should con­tinue to im­prove in the near term.

“De­vel­op­ments in the last two quar­ters are un­likely to change the con­ver­sa­tion about house­hold in­debt­ed­ness in Canada en­tirely though they are enough to al­ter its tone,” he wrote in a re­port.

Hogue noted as in­ter­est rates rise how Cana­di­ans man­age their debt ser­vice costs will be im­por­tant.

Sta­tis­tics Canada said the sea­son­ally ad­justed house­hold debt ser­vice ra­tio, mea­sured as to­tal ob­li­gated pay­ments of prin­ci­pal and in­ter­est as a pro­por­tion of house­hold dis­pos­able in­come for mort­gage and non-mort­gage debt, was rel­a­tively flat at 13.9 per cent.

“So far, the debt ser­vice ra­tio has re­mained sta­ble at slightly below 14 per cent. Yet we ex­pect that it will come un­der up­ward pres­sure in the pe­riod ahead,” Hogue said.

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

The Bank of Canada has raised its key in­ter­est rate three times since last sum­mer and is ex­pected to raise the trend-setting rate again later this year.

Changes in the rate af­fect the prime rates set by Canada’s big banks that are used for vari­abler­ate mort­gages and other float­in­grate loans.

To­tal house­hold credit mar­ket debt, which in­cludes con­sumer credit and mort­gage and non­mort­gage loans, to­talled $2.13 tril­lion in the first quar­ter.


Sta­tis­tics Canada said Thurs­day house­hold credit mar­ket debt was equal to 168.0 per cent of house­hold dis­pos­able in­come in the first quar­ter of 2018, its low­est level since the first quar­ter of 2016.

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