Canadians richer than ever – and awash in debt

Statistics Canada says Canadians boosted their borrowing in the second quarter.
Statistics Canada says Canadians boosted their borrowing in the second quarter.

Canadians have never been richer, according to the latest reading on household net worth released by Statistics Canada on Friday.

And we’ve never been more in debt.

After taking a breather from a decade-long binge on credit earlier this year, consumers regained their appetite for debt in the second quarter, largely related to taking out mortgages to buy homes.

Total household “liabilities” or outstanding debt grew by $28 billion, or 1.6 per cent, from the start of the year to reach a record $1.7 trillion, which includes home loans, auto financing, credit cards and all other outstanding consumer credit.

Economists at the country’s big banks were quick to peg the growth on the “seasonal bounce” in mortgages, noting that real estate activity picks up in the spring when Statistics Canada compiled the data.

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“More importantly, the year-over-year increase in household credit growth eased,” David Onyett-Jeffries, an economist at Royal Bank of Canada, said in a research note.

When comparing debt levels from this spring to last, RBC noted that total liabilities were up 4.9 per cent – the slowest rate of growth in more than 10 years.

Read more: ‘Is Canada about to become house poor?’

“Combined with gains in household net worth and income, the moderation in household debt growth points to an underlying improvement in consumer finances,” Onyett-Jeffries said.

Still, the uptick in debt comes as policymakers continue to express concern about historically high debt levels on the shoulders of Canadian families, saying that it is the single biggest domestic risk to the Canadian financial system and economy.

After falling for the previous two quarters, the so-called debt-to-income ratio—watched closely by economists and policymakers to gauge the health of consumers’ balance sheets—shot up to 163.4, the highest reading on record.

The ratio means that for every $1 brought home in after-tax income, on average Canadians owed $1.63 in debt.

On the plus side, the collective net worth of households inched 0.7 per cent higher to $7.3-trillion – also a new high.

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Economists at TD said they expect that as home-buyers adjust to rising interest rates, home loan lending is expected to slow, while households are likely to dial back on retail spending over the medium-term.

“It’s not surprising to see household indebtedness pick up as home sales have been rebounding as of late, but we do not expect this trend to continue going forward,” TD economist Diana Petramala said.

“We are still of the view that the need to keep debt accumulation under wraps will likely keep household spending soft over the next few years.”

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