Residential Market Commentary — Household Finances Looking Better

A decline in mortgage borrowing is seen as a key factor in lighter debt loads for Canadians.

Statistics Canada’s latest look at the national balance sheet shows that the household debt to disposable income ratio slipped from 178.6% in the first quarter, to 176.4% in the second quarter of this year.  In other words, Canadian households owe about $1.76 in credit market debt for every dollar of disposable income they have.

Disposable income is defined as the amount of income that remains after taxes and other mandatory charges, such as mortgage payments and rent, are paid.

Total borrowing dropped to $29.4 billion in Q2, down from $34.4 billion in Q1.  Mortgage borrowing led the decline falling to $19.4 billion.

The ability of Canadian households to pay their debt improved.  The debt service ratio (obligated debt payments to disposable income) eased from 14.68% to 14.52% between Q1 and Q2.

Total household net worth climbed in Q2, rising 2.9% to $19.1 trillion.  Most of the improvement came from higher asset values in equity markets.  Income also grew 2.1% in Q2, outpacing a 1.0% rise in total debt payments.  A modest improvement in seasonally adjusted residential real estate values also contributed to the increase.

However, most of that benefit came to the top 20% of the country’s wealth holders, highlighting the uneven nature of the current Canadian economy.

- First National Financial LP