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Canadians’ household debt surges to new record as borrowing continues

Various credit cards are seen in this file photo.


Canadian household debt soared to a record high in the second quarter of this year as rock-bottom interest rates continued to underpin heavy borrowing.

The ratio of debt to disposable income jumped to 167.6 per cent, higher than the first quarter's 165.3 per cent and eclipsing last year's record, according to Statistics Canada's national balance sheet report released on Thursday.

At the end of the second quarter, households owed $1.68 in debt for every dollar of disposable income.

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"Canadians love debt, and with interest rates this low, why wouldn't they," Leslie Preston, senior economist with Toronto-Dominion Bank, said in a note.

Canada's central bank is not expected to raise interest rates for at least another year, setting the stage for Canadians to shoulder even more debt.

Ms. Preston said it may be reassuring to point out that the pace of debt accumulation was below its pre-recession pace. "The trouble is," she added, "so is income growth."

Household credit-market debt, which includes mortgage loans and consumer credit, jumped 2 per cent in the second quarter, while disposable income increased 0.5 per cent.

Total household credit-market debt reached $1.97-trillion, with $1.29-trillion in mortgages and $585.8-billion in credit cards, car loans and other personal loans.

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Household net worth was up 1.9 per cent to $9.8-trillion due to booming real estate prices in the country's most expensive housing markets, Vancouver and Toronto.

The Bank of Canada has repeatedly said high household debt could threaten financial stability, with the latest warning issued in its September interest rate announcement. "Financial vulnerabilities associated with household imbalances remain elevated and continue to rise," the bank said.

But the central bank can do little. British Columbia's provincial government is revamping how its housing market is regulated and taxed.

The most recent measure designed to cool the market for housing in Vancouver rolled out in August. The new 15-per-cent-tax on foreign real estate buyers has eased activity and could have an impact on mortgage borrowing in the coming quarters.

On the positive side, Statscan's report showed the share of disposable income used to pay debt remained close to 14 per cent.

"Encouraging," Krishen Rangasamy, senior economist with National Bank Financial, said in a note. Household debt service remains "manageable for now."

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Likewise, the share of mortgage debt relative to the total credit market remained at 65.6 per cent, the first time in six years that it stopped expanding.

"There is no question that government efforts to lean against the growth in household debt has had an impact," said Craig Alexander, chief economist with the Conference Board of Canada.

Mr. Alexander pointed to the slowdown in mortgage credit since Ottawa started implementing stricter borrowing requirements and mortgage insurance rules.

Statistics Canada said the amount of mortgage principal paid by households was approaching the total amount of mortgage interest paid due to low interest rates.

But a consumer advocacy group warned Canadians not to get too comfortable with low interest rates.

"When interest rates are low, it's tempting to take out loans and buy things on credit, but we have to remember that interest rates will rise eventually," Scott Hannah, the chief executive of the Credit Counselling Society, said in a press release.

On the corporate side, non-financial businesses borrowed more in the second quarter. Their debt burden rose to 70 cents of credit-market debt for every dollar of equity, the highest level since 2009.

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About the Author
Economics Reporter

Rachelle Younglai is The Globe and Mail's economics reporter. More


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