Toronto, Vancouver Mortgages Keep Household Debt Near Record

  • Share of mortgage to total debt reaches highest since 1997
  • Net worth as percentage of disposable income was record 824%

Canadian consumer leverage remained near a record in the first quarter as rising mortgage liabilities offset a gain in disposable income.

Credit-market debt including mortgages was 165.3 percent of after-tax income, slightly lower than the 165.4 percent reading in the fourth quarter, Statistics Canada said Tuesday in Ottawa. Persistent strength in the Toronto and Vancouver real estate markets is underpinning the debt buildup, according to Benjamin Reitzes at BMO Capital.

“Even with the Q1 pullback in the debt ratio, the trend remains higher,” Reitzes, a Toronto-based senior economist, wrote in a note to clients.

The share of mortgage liabilities to total credit market debt reached 65.6 percent in the first quarter, “continuing an unbroken upward trend that began in the first quarter of 2010,” the federal statistics agency wrote. The last time the ratio reached that level was in the second quarter of 1997.

At the same time, real estate gains are bolstering the net worth of Canadian households at a faster rate than their U.S. counterparts. Net worth as a percentage of disposable income rose to a record 824 percent in the first quarter, up 142 percentage points from 10 years earlier. In the U.S., the same measure fell 5 percentage points.

Concern price gains in the two biggest housing markets are outpacing fundamentals has prompted a series of warnings of late.

Bank of Canada Governor Stephen Poloz said last week the pace of increases is probably unsustainable. The Washington-based International Monetary Fund followed suit Monday when it flagged Canada’s “elevated level of household debt” and said the government may need to consider new restrictions on mortgage lending. That warning was echoed the same day by the Organisation for Economic Cooperation and Development.

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