Canada’s household debt ratio creeps higher in second quarter

The amount households owe, relative to their income, crept higher in the second quarter, even as mortgage borrowing continued to slow, Statistics Canada said.

The agency said Friday creditmarket debt as a proportion of household disposable income increased to 169.1 per cent as growth in debt outpaced income.

In other words, Canadians owed $1.69 in credit-market debt for every dollar of household disposable income. The ratio was up from 168.3 per cent in the first quarter, however it was down from 169.7 per cent in the second quarter last year.

BMO Capital Markets economic analyst Priscilla Thiagamoorthy noted the increase was “well below seasonal norms” and one of the smallest second-quarter increases since 2000.

“Despite edging slightly higher in Q2, the closely watched household debt-to-income ratio appears to have finally turned the corner from all-time highs,” Thiagamoorthy wrote in a brief report.

“The key takeaway here is that borrowing cooled with the housing market as households adjusted to a slew of policy changes including tighter mortgage rules and gradual rate hikes.”

Household debt has been identified as a key vulnerability for the financial system by the Bank of Canada, however the central bank noted earlier this year that the risk has lessened.

On a seasonally adjusted basis, households borrowed $19.6 billion in the quarter, down from $22.2 billion in the previous quarter.

The decrease came as demand for consumer credit increased, but was more than offset by a decline in both mortgage and nonmortgage loans.

The decline in mortgages came as the housing market slowed amid tighter mortgage rules and rising mortgage rates.