Softer housing market, higher incomes help Canadians trim debts

RISING incomes and a slower housing market helped Canada’s households modestly repair their balance sheets in the second quarter, even as economic growth stalled.

Canadians’ disposable incomes rose 2.6 per cent from the first quarter, according to data released on Wednesday (Sep 13) by Statistics Canada. At the same time, households pared their growth in credit market debt, which increased just 0.6 per cent – the slowest pace on record outside the depths of the pandemic.

Weaker borrowing trends were driven primarily by a decrease in demand for mortgages, which fell to the lowest in nearly two decades, the agency said.

Combined, rising incomes and slower debt accumulation drove households’ ratio of credit market debt to income down to 180.5 per cent from 184.2 per cent in the previous quarter. That’s the biggest decrease in that measure in more than a year. But because rates have gone up sharply, households still spend nearly 15 per cent of their incomes on debt service.

Households’ debt-service ratio, or the proportion of income dedicated to debt and interest obligations, edged down to 14.8 per cent, the first decrease since the beginning of the first quarter of 2022. It was 14.9 per cent in the first quarter.

The data show restrictive borrowing costs are limiting Canadians’ appetite for piling on more debt. Coupled with income growth and still-low insolvencies, the numbers point to Canadians’ strong financial positions ahead of a projected period of slower economic growth and higher unemployment.

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The total value of Canadian households’ net worth rose 1.6 per cent to C$15.97 trillion (S$16.1 trillion) as home prices and financial markets rebounded in the second quarter.

The value of residential real estate in Canada rose 2.0 per cent in the April to June period, but still remains down 5.3 per cent or about C$447 billion below the peak of C$8.44 trillion in the first quarter of 2022, when the Bank of Canada began to aggressively hike interest rates. BLOOMBERG