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Canadian Household Debt Ratio Climbs To Record In Third Quarter As Mortgage Borrowing Hits $1.13 Trillion

An article from the Financial Post

The ratio of Canadian household debt to disposable income rose to a record in the third quarter as consumers increased their mortgage borrowing.

Credit-market debt such as mortgages increased to 163.7% of disposable income, compared with a revised 163.1% in the prior three-month period, Statistics Canada said today in Ottawa. Mortgage borrowing climbed 1.8% to $1.13 trillion.

Finance Minister Jim Flaherty has tightened mortgage rules four times amid signs of overbuilding in markets such as Toronto and Vancouver. While Bank of Canada Governor Stephen Poloz said yesterday that household imbalances should stabilize and unwind, the bank also said this week that household debt represents the biggest domestic threat to the world’s 11th-largest economy.

The increase in indebtedness is largely due to weak income growth, although “renewed momentum” in the nation’s housing market was a factor, said Leslie Preston, an economist at TD Economics.

“As the housing market stabilizes over the coming quarters and income growth picks up, the debt-to-income ratio is expected to remain close to its current, still elevated, level,” Preston said in a research note today.

The growth rate of household credit market debt was stable at 1.5% in the third quarter, Statistics Canada said.

Consumer credit debt for consumption, which includes auto loans and credit cards, rose 1.0% during the quarter to $505 billion, Statistics Canada said.

Slower Growth

Over the last five years, the growth in mortgage debt has averaged 1.7% per quarter, while consumer credit debt growth has averaged 1.2%, according to Statistics Canada. That compares with average growth of 2.5% for both types of debt between 2002 and 2007, the agency said.

The amount of equity that owners have in their homes as a percentage of real estate dropped to 69.3% in the quarter from 69.5%, Statistics Canada said.

National net worth increased 2.1% to $7.50 trillion in the third quarter, Statistics Canada said. On a per capita basis, the gain was to $212,700 from $209,200.