Stable Household Debt As A Result Of Mortgage Loans

In the initial quarter of this year, the amount of debts Canadians owe likened to their incomes went down, however, it was stagnant at near record levels as mortgage debt continuously increase. Statistics Canada showed in their recent date released last week that the number of household credit-market debt as a share of household disposable income went down to 166.9 per cent in the first quarter of 2017, compare to last quarter of last year, which was at 167.2 per cent.

The household credit market debt had an increase of 0.7 per cent, with household income having a higher increase of 0.9 per cent.

Laura Cooper, an economist of Royal Bank gave in details that the price of servicing debt has continued to be the same in the past year, however, sensitivity to rate increase is much more than when rate went up before.

In a report made by Cooper, she said; “Non-mortgage debt tends to command higher borrowing rates and variable payments, leaving households increasingly vulnerable to a looming uptrend in interest rates.”

Consumer credit, non-mortgage loans and mortgage loans all summed up to a total debt of $2.041 trillion in the first quarter. The mortgage debt was increase from 65.6 per cent to 65.7 per cent in the fourth quarter of last year.

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

The market value of household debt net worth increased by 2.2 per cent to about $10.534 trillion. In the first quarter, a seasonally adjustment of $27.5 billion households debt was borrowed, it went down from $27.6 billion in the quarter before.

From the fourth quarter, the mortgage borrowing went up by $2.7 billion to $20.9 billion, while a decrease by $2.8 billion, down to $6.5 billion happened for consumer credit and non-mortgage loans.

Concerns about household debt has been raised by economist and policy-makers, together with the Bank of Canada. It has been seen as a serious threat to the Canadian economy. Low interest rates has been a driving force behind the increase of household debt in the past years, however, the central bank already signaled that the trend might change as the economy get better.