Tags: Canada | debt | household | mortgage

Canadian Household-Debt Ratio Nears Record, Raising Concerns

Friday, 12 Sep 2014 10:46 AM

Canada’s ratio of household debt to disposable income approached a record high between April and June, underscoring the central bank’s concern about imbalances in consumer finances.

Credit-market debt such as mortgages rose to 163.6 percent of disposable income, from a revised 163.1 percent in the first quarter, Statistics Canada said Friday in Ottawa. The measure reached a record 164.1 percent in the third quarter of last year, and has averaged 119.7 percent since 1990.

Bank of Canada Governor Stephen Poloz last week said that “risks associated with household imbalances have not diminished” after saying in July they were “evolving in a constructive way.” Poloz and Finance Minister Joe Oliver have focused their concern on a condominium boom in Toronto and Vancouver, along with rising home prices and higher consumer debt loads.

“This release is consistent with that heightened concern,” said David Tulk, chief Canada macro strategist at Toronto-Dominion Bank’s TD Securities unit. Strains in consumer finances “provide the Bank with more confidence” to raise interest rates next year if the rest of the economy picks up, Tulk wrote in a research note.

The central bank’s trend-setting interest rate has been 1 percent for four years, helping to keep debt-service costs low for households. The report showed that interest payments made up 6.9 percent of disposable income in the second quarter, down from 7.2 percent in the previous quarter, to reach the lowest in records back to 1990.

More Mortgages

Mortgage debt rose 1.4 percent to C$1.17 trillion ($1.06 trillion) in the second quarter. Disposable income rose 1.0 percent.

Home sales and prices have shown unexpected strength as the lowest mortgage rates in decades spur demand. Forecasts for housing starts were raised Thursday to the highest this year in monthly Bloomberg News surveys.

Household net worth rose 2.3 percent to C$8.07 trillion in the second quarter, or C$227,000 per capita, led by rising home values.

Canadians held equity in their homes worth 70.2 percent of the total market value, the highest proportion since the first quarter of 2010, Statistics Canada said Friday.

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Canada's ratio of household debt to disposable income approached a record high between April and June, underscoring the central bank's concern about imbalances in consumer finances.
Canada, debt, household, mortgage
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2014-46-12
Friday, 12 Sep 2014 10:46 AM
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