By Ketki Saxena
Investing.com -- Statistics Canada's report on household debt figures today showed higher household debt, but also higher disposable income, lowering the nation’s net household debt-to-income ratio.
Household debt grew 2%, compared with a 3.3% gain in disposable income in the first three months of the year, helping the total net worth of Canadian households rise 2.6 % to $17.6 trillion (US$13.7 trillion).
Household credit market debt as a proportion of household disposable income fell to 182.5 %, compared with the record high of 185.0 % in the previous quarter. This implies there was $1.825 in credit market debt for every dollar of household disposable income in the first quarter of this year.
Mortgages remained the largest contributor to the heightened borrowing at $45.4 billion, down from $46.1 billion in the fourth quarter of 2021.
Much of the net worth gains were also from Canada’s hot housing market.
Real estate as a percentage of household disposable income reached 583.7 % in the first quarter, compared with 509.4 % a year earlier, indicating that Canadians are wealthier due to substantial gains in home equity, but also indicating worsened housing affordability.
The easing of national debt levels follows a financial systemic review by the Bank of Canada last week that indicates rising levels of household debt, particularly mortgage debt, as a key risk in the Canadian economy.
The household debt figures are likely to assuage the Bank of Canada’s concerns about a potential shock to the economy and Canadian consumers, particularly highly leveraged recent homebuyers, in the context of steeply rising rates and a slowdown in the housing markets.
The Bank of Canada will likely see today’s day as a further sign of robustness in the economy, further strengthening its case for rates to be at or above 3.25% by the end of this year.