Key consumer debt measure hits record, as wealth also climbs

• Key consumer debt measure hits record
• Net worth boosted by stocks, housing

Consumer credit growth may be slowing in Canada, but the key measure of household debt has hit a record.

That measure, household credit market debt to disposable income, climbed in the third quarter of the year to 163.7 per cent, from a revised 163.1 per cent in the previous three-month period, Statistics Canada said Friday.

At the same time, the net worth of Canadian families rose 2.2 per cent, buoyed by rising stock markets and property values.

On a per-capita basis, net worth among Canadian households rose in the latest quarter to $211,400, though that masks the income inequality across the country.

"Shares and other equities grew on the basis of the rebound in domestic and foreign equity markets," Statistics Canada said.

"The increase in household net worth was also supported by a 1.5-per-cent gain in the value of household real estate."

The higher debt burden could well spell trouble for some families when interest rates inevitably rise, though the Bank of Canada is believed to be more than a year away from such a move.

Here are some of the highlights from the federal agency's report:

• Household net worth rose by 2.2 per cent to $211,000, led by a 3.7-per-cent rise in the stock market.
• Real estate values rose by 1.5 per cent.
• Consumer credit debt rose by 1 per cent to  $505-billion.
• The consumer credit debt to disposable income ratio climbed to 163.7 per cent from 163.1 per cent.
• Mortgage debts rose by 1.8 per cent to $1.1-trillion, compared with the average quarterly growth of 1.7 per cent over the past five years.
• National net worth climbed 2.1 per cent to $7.5-trillion, or, on a per-capita basis, $212,700. That's a slower pace than the second quarter's 3.2-per-cent rise.

Home sales, of course, have rebounded smartly in Canada since the short government-induced slump in the summer of 2012, brought on by new mortgage insurance restrictions aimed at stopping a bubble.

Some of that is deemed to be the result of home buyers jumping in earlier than they otherwise would have because of higher mortgage rates and speculation of further increases.

Thus, economists believe the debt burden will ease.

"Sustained robust housing market activity and the resulting continued gains in mortgage debt accumulation drove the increase in credit market debt in the quarter," said economist Laura Cooper of Royal Bank of Canada.

"As this likely reflected purchases pulled forward in anticipation of rising mortgage costs, and with timelier data from the Bank of Canada indicating an easing in the pace of debt accumulation in the final quarter, our expectation is that the downward trend in the pace of credit growth that has been in place since 2008 will resume through 2014," she said in a research note.

"The re-emergence of the moderation in credit growth would be a welcome development for Canadian policy makers, particularly as the indebtedness of households was cited as one of the 'most important domestic sources of risk to financial stability' along with imbalances in the housing market in the Bank of Canada's Financial System Review."

The high debt burden, though expected to ease, will have an impact on the economy.

"The debt service ratio continues to fall, suggesting that the average Canadian can cope with their debt levels," said economist Leslie Preston of Toronto-Dominion Bank, referring to a related measure.

"However, we are still of the view that the need to keep debt accumulation under wraps will likely keep household spending relatively modest over the next few years."