Q1 Household Debt Levels Hold Steady as a Result of Mortgage Arears

The amount owed by Canadians as compared to their income decreased in the first quarter of the year, but still remained at almost record levels as mortgage debt kept climbing.
In its statistics disclosed last week, Statistics Canada mentioned that the number of household credit- market debts as a part of household disposable income moved quickly without being noticed to 166.9% in Q1 2017, compared with 167.2 % in the fourth quarter last year. Household income increased by 0.9% more than the 0.7% rise in household credit market debt.
Royal Bank economist Laura Cooper stated that the cost of servicing debt has stayed widely unchanged in recent years, but sensitivity to rate hikes is likely more now than when rates have increased in the past.
“Debt which non- mortgage tends to command very high borrowing rate and variable payment, leaving families increasingly expose to an unwanted uptrend in interest rates,” Cooper explained in a report, as quoted by the Canadian press.
Aggregate debt, which includes consumer credit, and mortgage and non-mortgage loans, totaled $2.041 trillion in the first quarter. Mortgage debt represented 65.7% of the total, up from 65.6% during Q4 last year.
“As indebtedness had recently stabilized for Canada in general, it still did not change, leaving families particularly sensitive to increasing rates,” TD Bank economist Diana Petramala said in a client note. “Moreover, averages do not tell the whole story with risk still increasing in Ontario.”
Family net worth at market value increased 2.2% to almost $10.534 trillion. Families borrowed, $27.5 billion on a seasonally adjusted basis in the first quarter, slightly down from $27.6 billion in the last quarter.
Mortgage borrowing raised $2.7 billion from the fourth quarter to $20.9 billion as demand for consumer credit and non-mortgage loan fell by $2.8 billion, down to $ 6.5 billion.
Economists and policy-makers, including the Bank of Canada, have shown interest in household debt and saw it as a serious risk to the economy of the country. Low rates of interest have been a major contributor to household debt increased in recent years but the central bank has just indicated that trend might be shifting as the economy has improved.