Interest rates have fallen throughout 2015, making borrowing more attractive, and Canadian households have responded by increasing debt levels to an all-time high.
As of the end of 2015’s third quarter, Canadians’ debt-to-income ratio was 163.7%, according to Statistics Canada data released December 14. This means the average Canadian household was carrying almost $1.64 in debt—including credit cards, consumer loans, mortgages and lines of credit—for every dollar of disposable income.
This is an increase from the previous quarter’s ratio of 162.7%. BMO chief economist Douglas Porter said the rise this quarter was expected, as income growth has been slow while borrowing has continued.
“Hot housing markets in B.C. and Ontario are driving mortgage growth—now 6.0% year-over-year—overriding the softness in oil-producing regions,” Porter said in a note to investors. “On the flip side, the relentless decline in oil and other commodity prices is dampening income growth, with disposable income up a modest 3.0% year-over-year in Q3.”
Porter pointed out the growth is in line with the 10-year average and will likely not have an effect on Bank of Canada policy.
“In its latest policy statement the Bank suggested that while ‘vulnerabilities in the household sector continue to edge higher,’ they see ‘overall risks to financial stability are evolving as expected,’” he said.
Diana Petramala, economist at TD Economics, said new mortgage rules introduced December 11 may have an effect on household debt levels going forward, which could cool Vancouver’s housing market somewhat.
“While these rules will likely impact a very small segment of the overall market, required higher downpayments may result in slightly softer household debt growth and higher homeowner’s equity,” Petramala said.
“However, set against a backdrop of rising unemployment, the debt-to-income ratio is still likely to continue to trek higher through 2016.”
