June 20, 2011 / 1:08 PM / 6 years ago

First quarter household debt-to-income ratio rises

<p>Skyscrapers loom over a flagpole carrying the Canadian flag in the financial district in Toronto, March 11, 2009.Mark Blinch</p>

OTTAWA (Reuters) - Canadian households continued to dig themselves further into debt in the first quarter as more people took out mortgages at ultra-low rates, according to Statistics Canada data released on Monday.

The ratio of household credit market debt, which includes mortgages, consumer credit and loans, to disposable income rose to 147.3 percent in the first quarter from a revised 146.2 percent in the fourth quarter of 2010.

Statscan said consumer credit grew at a slower rate than before as Canadians spent less on consumer goods, but mortgage debt advanced, "reflecting relatively stable borrowing costs as well as higher housing resale and renovation activities".

The figures reflect new accounting standards for the first time.

The Bank of Canada warned last week that Canadians are now as deeply indebted as the Americans and the British and that the number who are vulnerable to an adverse economic shock has risen to its highest level in nine years.

Finance Minister Jim Flaherty reminded Canadians on Monday that interest rates "have nowhere to go but up" from the central bank's current benchmark rate of 1.0 percent.

But he also said he saw some moderation in the housing market, even though there are some "hot spots" such as the condominium market in Vancouver.

Analysts noted that although the Statscan data shows a deterioration in household balance sheets, the most recent central bank data on the month of April showed a decline in household credit.

"While we do not anticipate that household credit balances will continue to decline going forward, we expect that the pace of growth will be more modest than we have seen in the last two years," said David Onyett-Jeffries of RBC Economics.

Statscan's first quarter numbers do not fully reflect stricter new rules on government-backed insured mortgages.

As of March 18, the government reduced the maximum amortization period on these mortgages to 30 years from 35 years, and lowered the maximum amount Canadians can borrow when refinancing mortgages to 85 percent from 90 percent. As of April 18, Ottawa withdrew government insurance backing on lines of credit secured by homes.

Statscan also reported that the market value of Canadian household net worth increased by 1 percent to C$6.3 trillion. Per capita net worth was C$184,700 in the quarter, up from C$183,300 in the final quarter of 2010.

As a percentage of disposable income, net worth per capita was relatively stable at 620 percent.

National net worth rose 0.7 percent from the previous quarter to C$6.37 trillion in the first three months of this year, still well below pre-recession levels.

Reporting by Louise Egan; editing by Peter Galloway

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