Statistics Canada says households had $1.79 in credit market debt for every dollar of disposable income on average in the fourth quarter.
On Wednesday, the federal agency reported that household credit market debt as a share of disposable income decreased for the third consecutive quarter.
The proportion dropped to 178.7 percent in the fourth quarter from 179.2 percent in the third quarter. This was attributed to disposable income outpacing credit market debt growth due to slow mortgage borrowing.
However, the household debt service ratio, which measures interest and principal as a percentage of disposable income, remained relatively unchanged in the fourth quarter. Shelly Kaushik, an economist with BMO Capital Markets, noted that it remains historically high and is expected to rise in the coming quarters.
Shelly Kaushik, an economist with BMO Capital Markets, mentioned that household debt ratios improved in the fourth quarter because high rates restrained demand for mortgage loans.
However, she expects demand to bounce back when rates start to decline in mid-2024.
Kaushik anticipates that elevated debt service ratios will continue to hinder household spending and broader economic activity until then.
She also pointed out that government debt levels are expected to rise in the coming quarters as larger borrowing plans are unveiled across the country during this budget season.
StatCan’s Wednesday release also stated that households were wealthier in the fourth quarter.
The agency reported that total household net worth rose by nearly two percent to $16.4 trillion, driven largely by strong performance in financial markets as both bonds and stocks rallied.
Despite the overall boost, economist Maria Solovieva from TD noted that there are still disparities.
She observed an increase in consumer insolvencies in January, leading her to believe that some families are struggling to meet their financial obligations.
However, she predicts another quarter of growth in household net worth moving forward.
“First, home prices have been increasing over the past three months, rebounding from last year’s decline as housing activity picked up due to improved financial conditions and lower mortgage rates,” she explained in a note to investors.
She also pointed out that equities, especially in the U.S., have seen gains.
“If March doesn't change the pattern, we anticipate that the first quarter of 2024 will bring further wealth gains, providing some support to consumer spending,” she added.
