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

Canadians now owe $1.68 in non-mortgage debt for every $1 of disposable income. That's down from nearly $1.70 last year.
Canadians now owe $1.68 in non-mortgage debt for every $1 of disposable income. That's down from nearly $1.70 last year. File/Global News

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.

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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.

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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.

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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.

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