June 14, 2016 / 2:42 PM / in a year

WRAPUP 1-Canada household debt ratio dips even as borrowing rises

OTTAWA, June 14 (Reuters) - Canadian household debt as a percentage of income edged lower in the first quarter but remained at elevated levels as consumers continued to borrow, a trend economists do not expect to reverse any time soon.

Separate data on Tuesday showed Canadian home prices continued their ascent with a 1.8 percent increase in May, the largest gain for the month since 2008.

Households held C$1.65 in debt in the first quarter for every dollar of disposable income, Statistics Canada said.

The ratio of household credit market debt to income was 165.3 percent, down from the fourth quarter’s record of 165.4 percent as income and debt increased at nearly the same rate.

While it was the first time in a year that the ratio has decreased, it typically declines in the first quarter.

Borrowing increased by a seasonally adjusted C$24.4 billion ($18.99 billion). Mortgage borrowing made up C$17.5 billion of that, down from C$20.7 billion in the fourth quarter.

Household debt to gross domestic product rose to 98.6 percent, up 4.5 percentage points from a year earlier.

Canada’s strong housing market has raised concerns that consumers, drawn by low interest rates, are taking on too much debt. The Bank of Canada said last week that households’ vulnerability to an economic shock had increased, in part because of elevated indebtedness.

Still, the figures are unlikely to change the path of monetary policy, with interest rates seen on hold into next year.

Bank of Canada Governor Stephen Poloz has made it clear financial imbalances would only influence policy if they affect achieving the inflation target, said BMO Capital Markets Senior Economist Benjamin Reitzes.

“It appears as though the Bank of Canada wants the government to take the lead,” Reitzes said.

Canadian governments have tightened housing regulations five times since 2008. Some have called recently for the new Liberal government to do more amid concerns that markets such as Vancouver and Toronto are becoming overvalued.

The Teranet-National Bank home price index showed prices up in all 11 cities it surveyed in May for the first time since June 2013.

Vancouver led with a 2.9 percent increase. Prices there have risen more than 2 percent a month since February, reflecting very tight resale market conditions, the report said.

Toronto was up for the fourth month in a row, taking prices to a new record.

($1 = C$1.2846)

Editing by Lisa Von Ahn

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