Canadian debt greater than GDP in second quarter this year

Canadian household debt's ratio to household income rose to a record high in the second quarter according to statistics just released by Statistics Canada.

The report is likely to raise concerns that Canadian consumers are overborrowing. Statistics show that the ratio of household debt to disposable household income rose to 169.85 percent from 167.37 percent in the first quarter. For every dollar of disposable income, Canadians are spending $1.70. The ratio of household debt to gross domestic product rose to 100,54 per cent compared to 98.7 percent in the first quarter. This means the total household debt during the quarter was slightly greater than the value of GDP during the quarter.

The long period of low interest rates after the financial crisis have encouraged Canadians to take on more debt. This is especially true with respect to buying homes, with the result that prices have shot up in most markets. In markets such as Vancouver or Toronto houses are simply too expensive for the average Canadian to purchase.Many Canadians believe that housing for them is no longer affordable and even those thinking of buying a house worry that the price rise is a bubble that will burst. At the end of the second quarter, Canadian mortgage debt was at $1.29 trillion.

Borrowing by Canadians in the second quarter was $29.2 billion, seasonally adjusted. This is $3.5 billon more than in the first quarter. Mortgages accounted for $19.1 billion of the total up from $18.4 billion in the first quarter. The Bank of Canada has said the high debt level posed a vulnerability for the financial system, and that the amount of debt compared to disposable income was becoming alarming. The continued rise in home prices has increased the net worth of Canadians at an average of $271,300 as compared to $266, 900 in the first quarter.

Laura Cooper, of the Royal Bank of Canada, said: “Households are in an increasingly precarious position” and “should continue to be cautious" about adding debt. However, the share of mortgage loans in household debt has remained stable at 65.6 percent. This is the first time since 1910 that the mortgage loan share has not increased from quarter to quarter. In spite of the high levels of debt, most families are able to meet their debt obligations with credit-market debt still at only about 20 percent of their net worth.