OTTAWA (Reuters) - Canadian household debt as a share of income remained near a record high in the fourth quarter, even as interest rates began to rise last year, while home sales fell in February as tighter mortgage rules hit demand.
The ratio of debt to disposable income dipped to 170.4 percent from a record 170.5 percent in the third quarter, Statistics Canada said on Thursday. The third quarter was revised downward from an initial 171.1 percent.
The Bank of Canada - which regularly expresses concerns about Canadians’ debt levels - has raised rates three times since July and says it is closely monitoring consumers for signs of stress.
Much of consumers’ debt has gone into the housing market, prompting local governments and regulators to take steps to address surging home prices and concerns Canadians may not be able to handle higher borrowing costs.
Canadian home resales fell 6.5 percent in February from January to the lowest level in nearly five years after home buyers rushed to get into the market late last year ahead of tighter mortgage rules that took effect in January, the Canadian Real Estate Association said.
The drop in sales over the past two months suggests the new stress tests for potential buyers are keeping some out of the market or forcing them to purchase smaller homes, said Robert Kavcic, senior economist at BMO Capital Markets.
“From the Bank of Canada’s perspective, we know that they’re looking at what’s happening with housing very cautiously,” Kavcic said. “They’re still probably getting a yellow light on this front.”
Sales were down in almost three-quarters of the housing markets, including the major cities of Vancouver and Toronto, the real estate group said.
On an annual basis, gains in national home prices continued to decelerate, with the home price index up 6.9 percent from a year ago, the smallest annual increase since October 2015.
The report from Statistics Canada showed households borrowed C$26.0 billion ($20.0 billion) in the fourth quarter on a seasonally adjusted basis, up from C$23.5 billion in the preceding quarter. Mortgage borrowing grew to C$16.0 billion from C$15.3 billion, the first rise after five consecutive declines.
Separate data from payrolls processor ADP showed Canada added 32,700 jobs in February, driven by increased hiring in the healthcare, trade and construction sectors.
Last week’s more closely watched jobs report from Statistics Canada showed employers added 15,400 positions in February.
Editing by Jonathan Oatis