Sean MacEntee

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Canadian household net worth was up in the second quarter of 2014, but so was mortgage debt — a reversal of a previous trend which economists viewed as an improvement.

That’s one of the key findings in new data released by Statistics Canada Friday that showed the debt-to-disposable income ratio in the second quarter climbed to 163.6 per cent, which — although below last year’s peak of 164.1 per cent — is up from the first quarter’s 163.1 per cent.

Low interest rates since 2008 have encouraged Canadians to take on more mortgage debt, but economists say the relatively small increase in the debt-to-disposable income ratio didn’t do a lot to reverse the improvement over the last several quarters.

While household net worth jumped 2.3 per cent — driven by gains in real estate values and supported by strength in life insurance and pension assets — mortgage debt rose 1.4 per cent to $1,170 billion, the agency said.

Also up was consumer credit debt, which climbed $7.1 billion from the first quarter to $513 billion.

And total credit market debt, which includes consumer credit, mortgage and non-mortgage loans, jumped 1.3 per cent to $1, 797 billion, outpacing the growth in disposable income.

Bank of Montreal economist, Benjamin Reitzes, said the result isn’t as bad as feared.

“With home sales remaining in pretty good shape and auto sales surging in part due to favourable financing deals, the ratio could go higher in [the third quarter],” he said.

Indeed, national wealth rose 1.8 per cent and lower interest rates enabled the household debt service ratio — interest paid as a proportion of disposable income — to drop to 6.9 per cent in the second quarter, remaining below the historical average of 8.6 per cent.

Reitzes also noted that the debt-to-income ratio is up just 0.4 percentage points from a year ago, which is the smallest increase since the ratio last declined in 2001.

What’s more, pointed out Reitzes, household net worth hit an all-time high with Canadian households having $5.43 of assets for every $1.00 of debt.

But TD economist Leslie Preston said household indebtedness is still high.

“Given a recent turnaround in the housing market, the debt-to-income ratio is likely to temporarily resume an upward trend over the rest of 2014,” she said.

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