September 10, 2021 | 09:47
Cdn. National Balance Sheet Accounts (2021Q2) — Mounting Mortgages
Canada's household debt-to-disposable income ratio rose in the second quarter of this year, up 5.35 ppts to 172.9% in not-seasonally-adjusted terms. This marks the largest increase on record (dating back to 1990) following six straight quarters of declines. Still, the ratio is about 6 ppts below its pre-pandemic all-time highs. In seasonally-adjusted terms, household debt-to-disposable income rose by 0.5 ppts to 173.1%. Credit market debt growth accelerated to 2.5% q/q as mortgage borrowing was “vigorous” (StatCan’s wording). And, household disposable income climbed for the second straight quarter, up 2.2% q/q thanks to higher wages and still-elevated government transfers.
The household debt service ratio (interest and principal as a share of disposable income) dipped to 13.32% despite the higher debt-to-disposable income ratio. With mortgage rates near record lows, interest payments on mortgage debts declined even though principal payments continued to grow for the fourth straight quarter.
With real estate values soaring to lofty levels, the asset side of the balance sheet continued to provide plenty of positives for the record books. Net worth climbed over 37 ppts to 971.7% of disposable income, marking an all-time high amid a hot housing market and a rally in equities. Meantime owner’s equity in real estate remained near all-time highs at 76.3%. That’s notable considering the ratio has held within a tight range under the 75%-mark for the last three decades. The net foreign asset position hit another record high, as global stocks outperformed Canada’s benchmark. And, the debt-to-asset ratio stepped down to 15.3%, the lowest since the second quarter of 2001.
Government debt ratios are slowly improving after reaching their pandemic-era peaks. Gross general government debt (includes all levels of government) edged down to 133.3% of GDP in the latest quarter (though that's still significantly higher than the 113.6% posted in Q1 2020), while net debt-to-GDP stepped back below the 50%-mark after surpassing it in Q1 for the first time since 2005.
Bottom Line: Canadian household finances deteriorated in the second quarter of this year as the key household debt-to-disposable income ratio posted its strongest increase on record, though the ratio remains below its pre-pandemic range. Mortgage debt growth accelerated ahead of tighter restrictions after slowing in the previous quarter. Housing market imbalances and still-high household debt remains a key vulnerability to the Canadian economy.