CANADA — The aggregate net worth of Canadian households increased in Q3/16 as household assets rose by 7.3 percent from a year-ago to reach $12.2 trillion. Strong performance in financial markets underpinned a surge in equity and bond valuations, which in turn, supported an 8.7 percent increase in financial assets (to $6.4 trillion).
Ongoing real estate appreciation provided additional support with non-financial assets advancing by 5.7 percent (to $5.7 trillion). Household debt obligations rose 5.1 percent from a year-ago in Q3/16 to reach $2.0 trillion. This was slower than the average 5.7 percent recorded in H1/16. A slowing in residential mortgage accumulation contributed to the decrease, rising by 6.2 percent compared to 6.6 percent in the previous quarter.
Consumer credit growth slowed even more sharply to 3.3 percent, marking the slowest pace in two years. The gains in household net worth and assets valuations outpaced household credit growth in Q3/16. Accordingly, the debt-to-net worth ratio improved by 0.2ppt to 19.8 percent while the debt-to-asset ratio edged down to 16.5 percent from 16.6 percent in Q2/16.
Our Take: The rise in the debt-to-income ratio is ostensibly the highlight of today’s snapshot of households’ financial positions, notably as the uptick occurred despite an outsized boost in personal incomes attributed to the Child Care Benefit payments that began in July.
Encouragingly, the household saving rate did surge by a full percentage point over the period to reach its highest level since Q1/01. That said, the further deterioration in the oft-cited debt metric will serve to strengthen the Bank of Canada’s appraisal that elevated household indebtedness remains a key vulnerability to financial stability. Such is expected to be flagged in the release of the Bank’s semi-annual Financial System Review (FSR) tomorrow.
Importantly, the enactment of macro prudential regulations aimed at curbing increasingly unsustainable housing market activity alongside a reduction of risks emanating from a weak crude oil price environment have occurred in the intervening period since the June FSR. Given Governor Poloz’s assertion that changes to housing finance rules will help to mitigate financial stability risks over time, the Bank’s assessment of household imbalances tomorrow is likely to remain unchanged from the June iteration despite today’s reported increase in outstanding household debt obligations.
SOURCE: RBC Economic press release