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Canada Household Debt/Income Ratio Eases; Real Estate Drives Income Gains

Published 2022-06-13, 10:44 a/m
Updated 2022-06-13, 10:48 a/m
© Reuters.

© Reuters.

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.

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