OTTAWA (Reuters) - Canada’s closely watched ratio of household debt to income rebounded to 163.6 percent in the second quarter from 163.1 percent in the first, following a pattern which typically sees a second-quarter rise, Statistics Canada indicated on Friday.
The ratio, which is not seasonally adjusted, typically declines in the first quarter as households pay off Christmas purchases and hold off buying homes till the spring and summer; it therefore usually goes up in the second quarter.
The Bank of Canada has been monitoring the housing market for signs of a bubble, and eyes this ratio for indications of households being overstretched.
It had said it expected a soft landing for the housing market but in a statement on Sept 3 it said the risks associated with “household imbalances” - referring to high debt and high housing prices - had not diminished.
The ratio hit a record 164.1 percent in the third quarter of 2013, declining to 163.9 percent in the fourth quarter. The second quarter of 2014 is now the third highest on record.
That said, the ability of households to service their debt has only gotten better as interest rates have fallen. Their debt-service ratio - interest paid as a proportion of disposable income - fell to 6.9 percent, the lowest since the data series began in 1990, from 7.2 percent in the first quarter.
The concern of course is that when interest rates do start rising the debt-service ratio will climb again and some households may find it difficult to meet their payments.
Editing by Chizu Nomiyama