Key household debt ratio creeps lower in first quarter to 168.0 per cent

The amount Canadians owe relative to their income crept lower for the second quarter in a row 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.

In other words, there was $1.68 in credit market debt for every dollar of household disposable income.

The result for the quarter compared with 169.7 per cent in the fourth quarter of last year.

“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.

“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 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.