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Canada: Household net worth lowers, debt-to-income ratio increases

Canada: Household net worth lowers, debt-to-income ratio increases

CANADA — The key takeaway from today’s snapshot on Canadian household finances is not the usual headline of another record high for the debt-to-income ratio, which did surge to an all-time high of 167.8 percent, reported RBC Financial Group.

Laura Cooper, RBC economist, stated, “Instead a decline in household net worth, albeit modest, alongside a sharp increase in consumer credit growth are notable as together they suggest that the ability of households to absorb higher interest rates continued to deteriorate. Beyond this, overall debt accumulation by Canadian households jumped in the second quarter of 2017 while asset appreciation slowed sharply led by poor equity market performance.”

A seasonal bounce in mortgage borrowing is typical as the spring thaw spurs home buying activity, yet adjusting for seasonal factors, mortgage growth slowed sharply in Q2/17 reflecting a pullback in national housing market activity. But the sharp rise in consumer credit balances leading up to the Bank of Canada’s rate hikes in July and September indicates financial pressure on households’ pocket books will intensify, RBC added.

The Bank of Canada committed to paying close attention to how sensitive households are to interest rate increases following a prolonged period of benign conditions. Cooper added, “We anticipate that households on the whole will be able to absorb rising costs given ongoing hiring gains and an expected shift to a more gradual pace of policy tightening. But it is worth noting that before any removal of the ‘considerable monetary policy stimulus,’ consumer credit interest payments exceeded that of mortgage payments for three consecutive quarters with this debt—typically lines of credit and personal loans– often tied to variable rates.”

Source: RBC Financial Group press release

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About Ronnie Garrett

Ronnie Garrett is the editor in chief of RV Daily Report. She's been a writer/editor for more than 25 years, working in law enforcement, aviation, supply chain and now the RV industry. She's not a stranger to RVs, however. She grew up camping, and still camps as many weekends as she can every year.

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