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morning business briefing

Briefing highlights

  • Canadians richer but deep in debt
  • Quebecor swings to quarterly profit
  • And then there's Trump, and his taxes
Canadian household debt-to-income ratio

Richer, deeper in debt

Canadians are growing ever richer and ever deeper in debt.

The key measure of household debt to disposable income rose in the fourth quarter of last year to a record 167.3 per cent, which means we owed about $1.67 for every dollar of adjusted disposable income, Statistics Canada reported Wednesday.

That measure rose as the pace of debt growth, at 1.2 per cent, eclipsed that on the income side, albeit only slightly with the latter at 1.1 per cent.

The report comes amid repeated warnings from several groups about swollen debt levels in Canada. The latest, from the Bank for International Settlements last week, indicated a mounting threat to the country’s banking system.

Canadian families borrowed $28.4-billion in the last quarter of 2016, a marked rise from the third quarter’s $18.7-billion. Mortgages accounted for $18.9-billion, a rise of $1.2-billion. Other forms of consumer credit also rose, the agency said.

What’s interesting here, noted Royal Bank of Canada economist Laura Cooper is how the pace of mortgage borrowing is easing but Canadians are jumping into other forms of credit.

“A slowdown in mortgage borrowing by Canadian households took hold in the final three months of 2016 as policy aimed at curbing hot housing market activity took a bite out of demand for loans,” Ms. Cooper said.

“A slower pace of mortgage growth is common as the winter weather sets in, but the introduction of tighter borrowing regulations in the period exacerbated the drop, with annual growth in this credit component easing to a five-quarter low,” she added.

“The pace of existing home sales slowed sharply over the same period with the downtrend carrying over into 2017, a sign that the slowing mortgage trend will continue and coupld be further dampened should the red-hot Toronto market provoke a regulatory response.”

By that she meant the possibility of further measures to cool down Toronto, such as a tax on foreign buyers of local properties, similar to the B.C. tax in the Vancouver area. We’ve also had new federal mortgage and tax measures.

But, Ms. Cooper said, the jump into other credit raises questions of its own, notably about the impact on already stretched consumers.

“The typically unsecured nature of this debt commands higher borrowing rates and variable payments, leaving households increasingly vulnerable to a looming uptrend in interest rates,” she said.

“As such, vulnerabilities are brewing under the surface of the headline $10.3-trillion in net wealth, particularly as upward pressure on servicing elevated debt levels alongside a policy-led slowdown tempering home valuations could increasing constrain tapped-out households.”

The debt-to-income measure, up from 166.8 per cent in the third quarter, climbed by 2.4 percentage point over the course of last year, for the fastest annual pace since 2010, noted Toronto-Dominion Bank economist Diana Petramala.

“For now, the mortgage regulations introduced in October, 2016, are likely to keep debt growth in check and buffer the economy from a potential hard landing in the GTA housing market,” Ms. Petramala said.

“However, the risk is that continued low interest rates, and soaring prices lead first-time homebuyers to take on too much debt while existing homeowners increasing draw on the equity that is rapidly accumulating in their homes.”

Canadians now owe a total of more than $2-trillion, with mortgage debt accounting for $1.3-trillion of that.

Of course, Canadians are growing wealthier at the same time, largely as property values rise along with stocks.

Household net worth, on a per-capita basis, climbed to $281,300, driven by a 1.2-per-cent rise in stocks and funds. Non-financial assets, including real estate, rose 0.9 per cent.

Household asset values now stand at $12.3-trillion, with housing representing about 40 per cent.


While some of us are fretting over our debts, and others over the Fed’s projections, you can bet the office chat will be about the spectacle that was Tuesday night’s leak of Donald Trump’s tax forms.

For Europe, there’s also the not-so-small matter of the Netherlands election.

First, what played out late Tuesday: Rachel Maddow unveiled on MSNBC that Trump was taxed $38-million (U.S.) on income of $150-million in 2005, which means a rate of 25 per cent, having written off $100-million in corporate losses.

Ms. Maddow had promised to release the details in the run-up to the show, prompting the White House to issue a statement beforehand maintaining that MSNBC, “desperate for ratings,” broke the law.

And as The Globe and Mail’s Barry Hertz writes, the show and its producers “teased, toyed and played their audience for a bunch of basic-cable rubes.”

We’ll see what more Mr. Trump has to say later in the morning.