Canadians are increasing how much money they’re borrowing, fresh data from Statistics Canada show, with debt burdens reaching yet another record high.
Canadian households increased their overall debt burden by 1.1 per cent in the final three months of 2014, the federal statistical agency said Thursday, or by $22.6 billion.
“Mortgages made up the largest portion of total borrowing in the quarter,” Statscan said. Experts have noted that borrowing for homes has “accelerated” again after a lull stemming from tighter mortgage lending standards that were implemented in 2012.
Total outstanding home loans grew by 5.4 per cent in January from the year-ago level to mark the fastest rate of growth since November 2013, Royal Bank of Canada said in a report earlier this month.
“Following a sustained period of stable year-over-year increases, mortgage growth accelerated for the third consecutive month,” the bank said.
Economists as well as policy-makers have grown increasingly concerned that record-high debt burdens, alongside a years-long housing boom, are becoming key risks to the domestic economy — concerns that will only be furthered by the latest data.
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Total household debt, which includes everything from credit cards, lines of credit, mortgages and non-mortgage loans, stood at $1.825 trillion, an increase of 1.1 per cent from the previous quarter.
Consumer credit debt was $519 billion, up 0.8 per cent, while mortgage debt advanced 1.2 per cent to $1.184 trillion.
Debt outpaces incomes
“For the third consecutive quarter, disposable income increased at a slower rate than household credit market debt,” the agency said.
As a result, the closely watched debt-to-income ratio — which measures how much debt Canadians collectively owe versus how much income we collectively take home — reached a new high of 163.3 per cent.
“In other words, households held roughly $1.63 of credit market debt for every dollar of disposable income in the fourth quarter.” The previous reading was 162.7 per cent, registered in the early fall.
key vulnerability
Economists at RBC said they expect the ratio of debt versus income to remain “elevated” as income growth remains “soft” amid a labour market that’s seeing less stable forms of employment, like part-time and self-employement, rise faster than higher paying jobs such as in full-time work.
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RBC economist Laura Cooper said record household indebtedness remains the “key vulnerability” to Canada’s financial system. Yet consumers nor lenders have paid much heed to warnings from the Bank of Canada and elsewhere to reduce debt levels, in part because interest rates have rarely — if ever — been lower.
“As a result, the warnings stemming from elevated debt balances are unlikely to subside,” Cooper said.
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