Debt Levels of Q1 Households Remain Steady Due To Mortgage Arrears

The quantity owed by Canadians compared to their incomes fell in the first quarter of the year, nonetheless still stood at near record levels due to the continued ascension of mortgage debt.

According to the data released last week, Statistics Canada announced that the amount of household credit-market debt as a percentage of household disposable income slipped to 166.9% in Q1 2017, compared to the 167.2% in Q4 of last year.

The 0.9% gain of household income was bigger than the 0.7% increase in the debt of household credit market.

Laura Cooper, an economist at Royal Bank clarified that the cost of servicing debt has remained broadly unchanged in recent years, however, sensitivity to rate hikes is more likely now than when rates had risen in the past.

“Non-mortgage debt tends to command higher borrowing rates and variable payments, leaving households progressively susceptible to a looming uptrend in interest rates,” Cooper stated in a report, as quoted by The Canadian Press.

Total debt, which includes consumer credit as well as mortgage and non-mortgage loans, summed up to $2.041 trillion in the first quarter. Mortgage debt represented 65.7% of that sum, up 0.1% from its 65.6% during the fourth quarter of 2016.

“While indebtedness has recently steadied for Canada as a whole, it still remains elevated, leaving households particularly sensitive to rising rates,” TD Bank economist Diana Petramala wrote in a client note. “Moreover, averages do not tell the full story, with risks still rising in Ontario.”

The net worth of households at market value rose from 2.2% to nearly $10.534 trillion. The $27.5 billion borrowed by households on a seasonally adjusted basis in the first quarter was somewhat lesser than the $27.6 billion from the previous quarter.

Mortgage borrowing augmented greatly from $2.7 billion during the fourth quarter to $20.9 billion, while demand for consumer credit and non-mortgage loans fell by $2.8 billion, down to $6.5 billion.

Economists, policy-makers and the Bank of Canada have made their anxieties known about household debt and identified it as a high risk to the national economy. A key contributor to the household debt growth in recent years has been the low interest rates, but the central bank has recently hinted that the trend might be shifting following and improvement in the economy.

J C Loum


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