Canadian households’ debt level was down slightly

In the first quarter of 2022, the disposable income in Canada grew faster than the debt level. As a result, the nation’s household debt-to-income ratio fell from the previous record highs.

According to Statistics Canada, household credit market debt as a share of disposable income went down to 182.5% from a record 185%, reported during the first three months of 2021.

In Q1, household debt was up by 2%, while the disposable income hike was 3.3%. Net worth showed a 2.6% increase to CA$17.6 trillion.

Such results suggest Canadians were in a better financial state to cope with higher interest rates at the beginning of the year, supported by significant income and housing gains. The report will probably reassure the central bank that households can handle more rate hikes. Now, markets predict a third 0.50% rate increase in a row next month.

A large share of the net worth gains comes from Canada’s hot real estate market. Housing as a share of household disposable income kept growing and reached 583.7% in the first quarter, while it was 509.4% a year earlier.

The second quarter brought a cooling to the national housing market, with sales slowing significantly. In April, home prices were down for the first time in two years, and the market is expected to keep slowing as the BoC raises borrowing costs. The Bank’s overnight interest rate, which stood at an extremely low of 0.25% until March, is expected to reach least 3.25% by the end of 2022.

Higher interest rates and debt service costs will be a challenge for Canadians, which are one of the most indebted among advanced economies.

Mortgages are still the main contributor to the rising borrowing at CA$45.4 billion, which was down from CA$46.1 billion seen in Q4 2021.