Canada household debt/income ratio continues to edge lower

Thu Jun 19, 2014 4:03pm EDT
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By Randall Palmer

OTTAWA (Reuters) - The ratio of Canadian household debt to income edged down further in the first quarter from the record high it hit last year, buttressing policymakers' expectations that a soft landing is in store for the housing market and family indebtedness.

Statistics Canada reported on Thursday a ratio of 163.2 percent in the first quarter. The ratio reached a record high of 164.1 percent in the third quarter of last year, and dipped to 163.9 percent in the fourth quarter.

In relative terms, the decline in the first quarter was tiny for a measure that jumped from 108.5 percent in early 2000 to 129.2 percent in 2006, and then rose inexorably in the following years as Canada avoided the real estate crash that afflicted the United States.

Finance Minister Joe Oliver and Bank of Canada Governor Stephen Poloz have been watching the housing market and household debt levels for signs that consumers are being overstretched but they have been relatively sanguine about recent trends.

Oliver said this week he expected a soft landing in the housing market. The Bank of Canada said last Thursday it continued to see "a constructive evolution in housing market imbalances and household credit".

The bank said, however, that household debt and overvalued housing remain the financial system's biggest vulnerability, with housing valuations stretched and overbuilding in some parts of the market.

Economists cautioned that the debt-income ratio is not seasonally adjusted. It typically declines in the first quarter as households pay off Christmas purchases and hold off buying homes until spring and summer.

"Still, today's broad results are a tantalizing hint that the corner is turning for household debt, and lend support to the Bank of Canada's view that imbalances are evolving 'constructively'," said Bank of Montreal chief economist Doug Porter.   Continued...

People work at a construction site in Vancouver, British Columbia June 20, 2011. REUTERS/Jason Lee