Photo: Sean MacEntee/Flickr
Household debt reached a new high in Canada in the final months of 2015, a trend TD Economics forecasts will continue, leaving Canadians even more at risk of an interest rate shock.
Statistics Canada’s fourth-quarter figures show Canada’s household debt-to-income ratio hit 167.6 per cent in the final quarter of 2015, up from 166.1 per cent the previous quarter, and a new record, according to TD.
In other words, for every dollar of disposable income Canadian households have, they now owe more than $1.67.
“Strength in the housing market has translated to higher household debt, with mortgage credit now increasing at the fastest pace since late 2012,” writes TD economist Dina Ignjatovic in the bank’s weekly bottom line report published Friday.
“Going forward, we expect the debt-to-income ratio to rise further in the first half of the year, with debt growing at about double the pace of income,” the TD economist forecasts.
“However, low interest charges have allowed the cost of carrying debt to grow more in line with income,” Ignjatovic points out, mentioning one exception: Alberta.
There, unemployment — which she says increased to 7.9 per cent last month — has driven incomes down, making debt less serviceable for some.
In the fourth quarter of 2015, households across Canada took on a seasonally adjusted total of $25.1 billion worth of debt, representing a slight decrease over the third quarter.
However, during this period, mortgages accounted for $21.9 billion of the aggregate debt, an increase of $1.2 billion compared to the preceding quarter.
Ignjatovic says Canada’s central bank is monitoring household debt levels to inform its policy.
She highlights how when it made its latest overnight interest rate announcement, the Bank of Canada acknowledged the increasing financial vulnerabilities brought on by the impact of lower oil prices on the country’s economy.
“With the reorientation of the economy expected to take some time, we don’t expect the Bank of Canada to move off the sidelines before 2018,” Ignjatovic concludes.