Canada’s Household Debt Burden Is Now Bigger Than Its GDP

  • Borrowing continues even as government tightens mortgage rules
  • Debt-service, debt-to-net-worth ratios remain little changed

Canadian household debt exceeded the country’s gross domestic product for the first time as liabilities climbed to a fresh record relative to disposable income.

Household debt rose to 100.5 percent of gross domestic product in the second quarter from 98.7 percent previously, Statistics Canada said Thursday from Ottawa. Credit-market debt such as mortgages increased to 167.6 percent of after-tax income, from 165.2 percent in the first quarter.

The Bank of Canada and Finance Minister Bill Morneau have said the economy is at risk from record consumer debt burdens and a housing boom in Vancouver and Toronto. British Columbia’s government imposed a new 15 percent tax on foreign buyers which took effect last month and Morneau said last week he’s looking at whether more action is needed after a December move to tighten mortgage down-payment and lending requirements.

“Households are in an increasingly precarious position” and “should continue to be cautious” about adding debt, Laura Cooper, an economist at Royal Bank of Canada, said by phone from Toronto. Debt loads have climbed in an era of low interest rates and a stable job market, she said.

Hertzberg/Bloomberg

The debt ratios climbed as consumers responded to tighter mortgage rules by seeking other types of loans.

For the first time since the start of 2010, mortgages stopped increasing in the share of total household debt, remaining at 65.6 percent, Statistics Canada said. Total credit-market consumer debt rose 2 percent in the second quarter, faster than the 0.5 percent gain in disposable income.

On the plus side, low interest rates are keeping a lid on the cost of borrowing. The debt-service ratio of 14.2 percent was little changed from the first quarter.

Thursday’s figures also show that families have assets to meet their debt obligations, with credit-market debt remaining at about 20 percent of their net worth.

Canada’s government is determining how to follow through on a campaign pledge to make housing more affordable, Jean-Yves Duclos, the minister of families and social development, said Wednesday at a forum in Vancouver. 

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