Rising Household Debt

Canadian consumers continue to borrow at a faster rate than their wages grow, making the country's otherwise healthy-looking economy very vulnerable..

Economists have warned against rising household debt, as Canadians continue to borrow at a faster rate than even the profligate Americans. U.S. borrowers have begun to check their own debt after their a deep recession and housing bust.

Meanwhile, Canadians are binging on debt due mostly by rising home prices, low interest rates, and economic prospects that are among the best in the Group of Seven. The quarterly ratio of household credit debt—incorporating mortgages and consumer loans—to disposable income hit 147.3% in the January-to-March period, up from 146.2% in the preceding quarter, That's the highest level since the agency began keeping these figures, dating back to 1990. It is also up sharply from just four years ago, when the figure was 127%.

By comparison, household debt in America, as a ratio to disposable income, peaked at 164% in late 2007, and is now hovering around 144%, according to data compiled by economists at Toronto-Dominion Bank.  "Canadian debt ratios are now leaving their U.S. counterparts in the rearview mirror," wrote BMO Capital Markets economists.

Consumer debt growth in Canada moderated in the first quarter, to 1.3%, a slower advance compared to increases of 1.4% and 1.7% in the two preceding quarters, respectively. Regardless, the first-quarter rise was faster than the 0.7% gain in household disposable income.

High debt levels could force households to hold back spending, which would make the Canadian economy to rely more on investment in business and exports. Earlier this month, Canada reported a surprise trade deficit, bringing worries that the strong Canadian dollar was making Canadian goods less competitive overseas.

Meanwhile, the data agency said Canada's national net worth rose 0.7% to 6.4 trillion Canadian dollars (US$6.53 trillion) in the first quarter, as growth in non-financial assets, mainly in non-residential properties, was partially offset by an increase in net foreign debt. Household net worth advanced 1% to C$6.3 trillion, after a 2.4% increase in the October-to-December period. Per capita household net worth was $184,700 in the first quarter, up from $183,300 in the fourth quarter; household debt per capita climbed to C$45,000, from C$44,500.