Is Canada's household debt spree winding down?

Debt-to-income ratio trends downward in Q1 2018

By Ephraim Vecina

18 Jun. 2018

With latest numbers from Statistics Canada showing that the national debt-to-disposable-income ratio has declined by the greatest amount on record in Q1, analysts argued that this marks the beginning of Canadian households’ decreased dependence on debt.

The ratio went down to 168% in the first quarter of 2018, from 169.7% in the previous quarter. The 1.7% decline was the largest in record dating back to 1990. Disposable income grew by 1.3%, and credit-market debt increased by a miniscule 0.3%. Mortgage borrowing declined by $2 billion (down to $13.7 billion) quarter-over-quarter.

Statistics Canada also noted that Canada’s latest housing price index stood flat in April, with Toronto exhibiting its first annual decline since 2009.

“[This slack] will give the Bank of Canada breathing room to maintain a gradual pace of tightening,” Toronto Dominion Bank senior Canada rates strategist Andrew Kelvin told Bloomberg.

However, the Credit Counselling Society was unconvinced that a significant portion of the market is already weaning itself off debt, as many households (almost 47% of Canadians) are still living paycheck to paycheck.

25% of Canadians recently polled by the organization indicated a belief that they would not be able to shell out $2,000 within a month during an emergency.

“Canadians have not taken sufficient steps to address and improve their overall financial wellbeing” Credit Counselling Society president Scott Hannah said.

“With tariffs being placed on goods from both sides of the border, we are not only concerned about the ramifications for the industries and employees impacted by these tariffs, but for Canadians in general who will feel the pinch to their pocketbooks as a result of long-term consequences of a drawn-out trade war.”