2 Min Read
OTTAWA (Reuters) - The ratio of Canadian household debt to income, nervously watched by the financial authorities for signs households are over-stretched, has now fallen for the last two quarters, Statistics Canada reported on Thursday.
The ratio fell to 161.8 percent in the first quarter from 162.6 percent in the fourth quarter and from what is a now revised record of 162.8 percent in the third quarter of 2012.
The revisions to the ratios resulted from major revisions to the national accounts that are undertaken every year, with higher income accounting for most of the changes. Previously, Statscan had reported a record ratio of 165.0 percent in the fourth and 164.7 percent in the third.
The Bank of Canada and the Finance Department had voiced concern over the high household debt, coupled with a hot real estate market, but they seem more confident that this is now under control.
While the central bank's June 13 Financial System Review said the biggest domestic source of risk to the financial system remained high household debt and the housing market, it said the risk had decreased and it predicted the household debt-to-income ratio would remain near current levels this year.
That said, it did say housing valuations remained stretched in some market segments and there continued to be signs of overbuilding, despite government measures in mid-2012 to cool the market.
Some economists had pointed out the Canadian economy's vulnerability after the Canadian ratio exceeded the U.S. ratio from the second quarter of 2010 onward. Statscan's calculation of the comparable U.S. ratio for the first quarter of 2013 is 139.9 percent.
But others pointed to the fact that Canada's household debt was backed by assets, especially real estate. Canada's ratio of household debt to net worth has in fact fallen to 23.6 percent in the last quarter from 24.1 percent in the second quarter of 2012 and 24.4 percent in the fourth quarter of 2011.
Reporting by Randall Palmer