First National Financial LP

Residential Mortgage Commentary - Household debt creep resumes

  • First National Financial LP

In a year where pretty much all things economic and financial have been stood on their heads, here is another anomaly brought on by the coronavirus pandemic.  Household debt is on the rise again and a lot of it is mortgages.

The latest tally by Statistics Canada shows that the Canadian Household Debt-to-Income ratio crept back up to 170.7% in the third quarter.  That is, on average, Canadian households owe $1.71 for every dollar of disposable (after tax) income.  That is a significant bump from $1.63 in the second quarter, but significantly less than the $1.81 at the start of the year.

The drop in Q2 is largely attributed to government support payments, mortgage deferrals and other debt relief that saw Canadians spending much less, while still collecting an income.  The accumulation of cash is reflected in a national savings rate that bolted to 27.5% in the quarter.  It slipped back to 14.6% in Q3, but is still well above the historical average.  By one accounting Canadian households have socked away $90 billion in savings since the start of the pandemic.

However, growing job numbers, the winding down of federal supports and the end of deferrals have households spending again, and they have not lost their taste of debt.

Total borrowing in the second quarter came in at $7.2 billion.  In the third quarter it shot up to $34.8 billion, including a record $27.8 billion in mortgages.

Household net worth rose 3% in the third quarter driven by gains in residential real estate and the stock markets.  At the same time though, disposable income slipped 3.1%.