Canada Household Debt Falls on Borrowing Slowdown

Canadian household debt levels fell from a record in the fourth quarter as families slowed their pace of borrowing to the least in more than a decade.

Credit-market debt such as mortgages increased to 164.0 percent of disposable income, compared with a revised 164.2 percent in the prior three-month period, Statistics Canada said today in Ottawa. Total household debt was up 4.5 percent from a year earlier to C$1.77 trillion ($1.60 trillion), the slowest pace since 2001, according to the data.

Debt accumulation is slowing even as rising values of home and other assets boosted net worth to records, easing concern that overly leveraged households are a major danger to the nation’s economy. The Bank of Canada cites elevated household imbalances as one of the risks linked to maintaining loose monetary policy.

“A greater expansion of asset values accompanied the rise in households’ debt burdens, thereby helping to ease” those concerns, Laura Cooper, at economist at Royal Bank of Canada, wrote in a note to investors.

Household debt accumulation helped Canada through the worst of the 2008 global financial crisis as low interest rates boosted debt-fueled home buying. Still, Bank of Canada Deputy Governor John Murray said in a speech earlier this month the nation’s household sector is “now largely played out” and that pushing consumers further may “lead to trouble.”

‘Constructive Evolution’

Policy makers have kept the benchmark rate on overnight loans between commercial banks at 1 percent since September 2010. Governor Stephen Poloz has said he anticipates a “constructive evolution” of household imbalances.

“The risks associated with elevated household imbalances have not materially changed,” policy makers said in their last rate announcement Jan. 22.

Mortgage debt rose 1.1 percent to C$1.1 trillion in the fourth quarter, compared with an average 1.8 percent pace over the past six years, Statistics Canada said today.

Household net worth rose 3 percent in the fourth quarter, Statistics Canada said, led by a 5.9 percent gain in the value of equities. The value of household real estate rose 1.6 percent in the quarter.

The amount of equity that owners have in their homes as a percentage of real estate rose to 69.5 percent in the quarter from 69.4 percent, Statistics Canada said.

National net worth increased 2.7 percent to C$7.73 trillion in the fourth quarter, Statistics Canada said. On a per capita basis, the gain was to C$218,500 from C$213,100.

To contact the reporter on this story: Theophilos Argitis in Ottawa at targitis@bloomberg.net

To contact the editors responsible for this story: Paul Badertscher at pbadertscher@bloomberg.net Chris Fournier

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