The average Canadian household had just over $1.70 in debt for every dollar of disposable income at the end of 2017, according to Statistics Canada data released March 15.
The debt ratio – defined as household debt as a proportion of household disposable income – was 170.4 per cent; this is just under Q3’s record high of 170.5 per cent, which has been revised downward by StatsCan from the previously stated 171.1 per cent.
BMO Capital Markets senior economist Benjamin Reitzes said the decline, however small, was unexpected.
“The fourth quarter doesn’t have any clear seasonal trend, but the fall in the ratio is a bit surprising given the jump in home sales activity ahead of the introduction of the new mortgage rules on January 1, 2018,” he said in a note to investors.
“While it’s too early to tell, we just might have seen the peak in the debt ratio in Q3, as Q1 [2018] will no doubt see a sizable decline due to seasonality – in fact, housing slowed much more than usual – and higher interest rates.”
On a more positive note, household net worth increased to 870.5 per cent of disposable income, up from 862.2 per cent in Q3. Reitzes said this is due to financial assets having solid returns in the quarter and reverses some of the declines in the previous two quarters, bringing the number close to Q1 2017’s record high of 876.9 per cent.
Josh Nye, economist at RBC Economics Research, said 2018 could be an “interesting” year compared with last year because of the apparent change in direction of debt growth.
“In broad strokes, 2017 painted a familiar picture of household finances: rising asset values, more borrowing and fairly steady debt payments relative to consumers’ incomes,” Nye said. “With interest rates expected to rise further and housing regulations tightening at the federal and provincial levels, the peak in debt growth could very well be behind us.
“That should be viewed as a positive development by the [Bank of Canada], though progress on reducing the ‘key vulnerability’ of elevated household debt will likely be very slow.”
ecrawford@biv.com
@EmmaHampelBIV
