Turning point? Canadians’ household debt load drops to two-year low

Canadians’ debt burden just got a little lighter than it has been in years, according to data released on Thursday by Statistics Canada.

Households owed $1.68 for every dollar of disposable income in the first three months of 2018, down from a record high of nearly $1.70 in 2017 and marking the lowest ratio since the $1.65 recorded at the start of 2016.

READ MORE: Here’s what happens to $1K in credit card debt when you make only minimum payments

The drop suggests “we may finally be at a turning point as the one-two punch of stricter mortgage rules and higher interest rates slow household borrowing,” BMO economist Priscilla Thiagamoorthy wrote in a note to clients shortly after the release.

The shrinking debt load also had much to do with Canadians earning more. Disposable incomes rose by a healthy 1.3 per cent between January and March, while consumer debt inched up only 0.3 per cent.

READ MORE: 7 common mistakes that explain why you never have enough money

Mortgage borrowing, on the other hand, decreased by $2 billion to $13.7 billion, the lowest level since mid-2014, reflecting the new mortgage rules and higher borrowing costs.

Canadians’ net worth also slipped, by 0.2 per cent, the first decrease on record since the July-to-September period in 2015. The dip reflects slow growth in the value of non-financial assets like homes and negative growth in the value of financial assets like stocks and bonds.

READ MORE: Why aren’t home prices falling? Home sellers won’t have it

The size of total household debt compared to their assets now stands at 16.6 per cent, meaning Canadians now have around $6 of assets for every $1 of debt, Thiagamoorthy noted. That’s a 4 per cent drop since the last three months of 2017.

The debt-service ratio, which measures what share of disposable income Canadians are devoting to debt payments, remained relatively steady at 13.9 per cent, StatCan said.