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Statistics Canada says Canadian households owed an average of $1.71 for every dollar of disposable income in the third quarter.JONATHAN HAYWARD/The Canadian Press

Canada’s household debt burden is back on the rise.

The ratio of credit-market debt to disposable income rose to 170.7 per cent in the third quarter from 162.8 per cent in the second quarter, Statistics Canada said Friday. Credit-market debt – which includes mortgages and other loans – rose 1.6 per cent, while disposable income dropped 3.1 per cent as people relied less on government support.

In other words, the average Canadian household owes $1.71 for every dollar of post-tax income. Still, the ratio is markedly lower than the 181 per cent to end 2019.

The COVID-19 pandemic has thrown personal finances for a loop – and often, with positive implications. Government benefit programs have injected billions into Canadians’ chequing accounts and more than replaced lost income. Meanwhile, a sizable chunk of households deferred mortgage payments early in the pandemic, and others were hesitant to borrow.

Those factors “significantly skewed many financial indicators in the second quarter,” said Toronto-Dominion Bank economist Ksenia Bushmeneva in a client note. “However, with employment situations normalizing and payment holidays expiring, we are starting to see a reversal,” she added.

Indeed, more than one million jobs were added over July, August and September. As a result, Canadians relied less on income-support programs. That said, increased compensation from employers was outweighed by lower government support, leading to a 3.1-per-cent decline in household disposable income from the second quarter. (Government transfers and post-tax income were still much higher than a year earlier.)

Canadians were also more keen to take on debt. Total borrowing increased to $38.4-billion in the third quarter from $7.2-billion in the second, driven largely by record demand for mortgages of $28.7-billion. After a large drop in the second quarter, non-mortgage loans rose by $9.7-billion. Household debt totalled $2.4-trillion at the end of September.

At the same time, wealth rose sharply. Household net worth – the value of assets minus liabilities – rose 3 per cent, thanks to gains in the stock market and residential real estate. Statscan noted that housing investment, which includes new purchases, climbed to a record high.

“Clearly, cash is not always king, and having wealth – whether it’s financial or real estate assets – has really paid off this year with equities and real estate prices rallying,” Ms. Bushmeneva said.

Mortgage deferrals are winding down, leading to greater debt obligations. The debt-service ratio – which measures obligated payments as a percentage of disposable income – rose to 13.2 per cent from 12.4 per cent. That is still lower than before the pandemic.

“Overall, the amount of debt in deferral as a result of the various relief measures provided by lenders had dropped significantly by the end of the third quarter,” Statscan said.

Despite higher consumption, Canadians continue to sock away plenty of cash. The household savings rate stood at 14.6 per cent – lower than a record 27.5 per cent in the second quarter, but considerably higher than the historical average.

In its fall economic statement, the federal government said its recovery plan would “prioritize investments” that help “unleash” savings that have accumulated in personal and business accounts, referring to them as “preloaded stimulus.”

Households and businesses are sitting on at least $170-billion in excess cash, CIBC Capital Markets estimated in a recent report. Among consumers, the “vast majority” of extra cash is likely parked in mid- and high-income households, CIBC said.

Given that, there’s some debate over whether the government needs to do anything to coax people into spending. The key thing, said CIBC deputy chief economist Benjamin Tal, is simply getting the virus under control and lifting restrictions on hard-hit service sectors.

“There’s so much pent-up demand – I don’t think you need to allocate resources to encourage” spending, Mr. Tal said. “This money will find its way somewhere in the economy.”

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