Canadians' net worth swelled in the third quarter, riding the crest of rising equity markets. But debt levels rose too, sending the household debt-to-income ratio to a record high.
Household net worth climbed 2.3 per cent in the quarter, as Canada's benchmark stock index gained 10 per cent, Statistics Canada said Monday. Net worth hit $5.7-trillion, marking two quarters of gains after three straight drops
Debt, too, is rising. Household debt, as measured by mortgages and consumer credit, swelled 1.6 per cent as low borrowing costs caused Canadians to buy more homes and renovate them. They also bought more cars, sparking a further increase in consumer credit, the agency said. Personal debt has been steadily rising in Canada since 1982.
"Falling mortgage rates, along with increased sales of existing homes and renovations, sustained increases in mortgage demand," the report said. "Strength in auto purchases led to a further increase in consumer credit."
Thus the household debt-to-income ratio rose 2 points to 145 per cent, the highest level since quarterly record-keeping began in 1990. That means for every $100 of personal disposable income, Canadians are now carrying $145 in debt.
Back in 1990, by comparison, Canadians were carrying $88.60 in debt for every $100 of income.
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Household debt has become the biggest risk to the country's financial system, the Bank of Canada cautioned last week in its review of the financial system. The central bank cut interest rates to a record low this year, and expects to keep them there until mid-2010, a move which is both kick starting the economy and fuelling an increase in borrowing.
Canada's national net worth fell 1.3 per cent to $5.9-trillion, the third straight drop and the biggest decline on record, largely due to an increase in net foreign debt.
Household per capita net worth is now $168,800 in the third quarter, still below the peak of $179,000 in the second quarter of last year, Statscan said.
The third-quarter increase in household net worth was due to higher values of financial assets, which include fixed income securities, corporate equities, mutual fund investments, and pension assets.