Key measure of Canadian household debt remains near record level in Q1

The amount Canadians owe compared with how much they earn edged down in the first quarter, but remained near a record level as mortgage debt continued to pile up.

OTTAWA — The amount Canadians owe compared with how much they earn edged down in the first quarter, but remained near a record level as mortgage debt continued to pile up.

Statistics Canada said Tuesday that the ratio of household credit market debt to disposable income was 165.3 per cent for the first three months of 2016 as both income and debt grew at nearly the same rate.

That means households owed roughly $1.65 in credit card, mortgage and other loan debt for every dollar they earned after taxes and other fees paid to government.

The ratio was down a hair from 165.4 per cent in the fourth quarter of last year.

Bank of Montreal senior economist Benjamin Reitzes said the dip in the ratio of debt to income was the smallest first-quarter drop in seven years and predicted it would rise again in the second quarter.

“Home sales pick up a lot in the second quarter and so you get a lot more mortgage debt . . . in the second quarter and that pushes up that ratio that much more,” Reitzes said.

The Bank of Canada warned last week that home prices in Vancouver and Toronto have outpaced local economic fundamentals and are rising at an unsustainable pace.

The comments by the central bank joined a chorus of other voices that have already raised concerns about the Canadian housing market.

TD Bank economist Diana Petramala noted that mortgage borrowing is starting to accelerate and the risk that rapidly rising home prices will encourage a deeper accumulation of debt through 2016 is rising.

“The fear of missing out, referred to as “FOMO,” is a developing trend amongst first-time homebuyers who may choose to jump into the market despite the high prices rather than risking being priced out in the future,” Petramala wrote in a note to clients.

“This could leave them with too much debt, particularly in Toronto and Vancouver housing markets where homes are increasingly expensive.”

The flip side of rising home prices is rising net worth due to higher home values. Statistics Canada said household net worth rose 1.2 per cent in the first quarter to $9.633 trillion, boosted by gains in the value of real estate.

Reitzes said asset growth is strong and noted that Canadian households have $5.92 in assets for every dollar of debt.

“Overall it suggests that households are in OK shape,” he said. “It is not necessarily as dire as the headline (number) would suggest.”

“There are vulnerabilities there … but as long as you don’t get a meaningful negative shock to the economy, households are in decent shape overall.”

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