WRAPUP 1-Canadian household debt-to-income ratio hits record high

Fri Sep 13, 2013 11:22am EDT
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By David Ljunggren

OTTAWA, Sept 13 (Reuters) - The ratio of household debt to income in Canada hit a record high in the second quarter, although the pace of growth slowed from the same period in 2012, Statistics Canada said on Friday.

The federal government and the Bank of Canada have expressed concern that Canadians are taking on too much debt - in particular cheap mortgages - at a time when interest rates are at near record lows. Officials fret that when rates go up eventually, some consumers could find themselves in trouble.

The ratio of household debt to income rose to 163.4 percent in the second quarter from 162.1 percent in the first quarter. The rise in the ratio followed two consecutive decreases.

Analysts said it was too early to draw conclusions from the latest data, noting the second quarter is traditionally a busy one for home-buyers. One suggested Canadians could be rushing to buy property as mortgage rates show signs of rising.

In May, Bank of Canada Governor Stephen Poloz said he saw signs of a constructive evolution in household debt. The bank, which has held rates steady since September 2010, said last week it would withdraw stimulus measures at an unspecified time in the future.

"What the Bank of Canada has described as a 'constructive evolution' of household balance sheets still appears to be unfolding, but the modest deterioration in the second quarter and the recent pop in home sales raise some doubts," said Doug Porter, chief economist at Bank of Montreal.

"The lingering question mark on this front is one reason the Bank of Canada has doggedly maintained its mild tightening bias," he said in a note to clients.

The head of Bank of Nova Scotia said last week policymakers should raise interest rates if they fear a bubble is forming in Canada's housing market rather than imposing more regulations on the country's big banks and mortgage lenders.   Continued...