Canada household debt-to-income ratio hits record high

Fri Dec 13, 2013 10:45am EST
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By David Ljunggren

OTTAWA (Reuters) - The ratio of Canadian household debt to income edged up to a record high in the third quarter but the pace of growth almost halved, which might calm policymakers fretting about high personal debt levels.

The ratio hit 163.7 percent in the third quarter from 163.1 percent in the second quarter, Statistics Canada said on Friday. The ratio increased by 0.34 percent from the second quarter after advancing by 0.65 percent in the second quarter over the first.

The Bank of Canada - which has regularly warned Canadians not to take on too much debt at a time when interest rates are near record lows - has said it sees signs consumers are starting to retrench.

Bank of Canada Governor Stephen Poloz said on Thursday he expected imbalances, including rising household indebtedness, to stabilize and then gradually unwind in coming years.

Analysts noted that the second and third quarters of the year are typically peak times for buying property.

"While the household debt ratio deteriorated again in the third quarter, the Bank of Canada's 'constructive evolution' of household balance sheets appears to be unfolding," said Benjamin Reitzes of BMO Capital Markets Economics.

"Policymakers will continue to watch this metric, but rising interest rates and better income growth should stabilize, then nudge this ratio lower over the next few years," he said in a note to clients.

Mortgage borrowing led the demand for credit in the third quarter, rising by C$19.7 billion ($18.4 billion) to a total of just over C$1.1 trillion.   Continued...

The Toronto Skyline with a condominium building under construction (L) is shown in downtown Toronto, May 14, 2009. REUTERS/ Mike Cassese