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Household Debt and Net Worth both Grow in Third Quarter

Statistics Canada came out on Friday with some good news and some bad news. According to their new report, household debt grew during the third quarter to a new record high, but at the same time, net worth also grew, suggesting that those who are taking on more debt can afford to do so.

According to Stats Can, household debt climbed in the third quarter to 163.7 per cent, a small jump from the 163.1 per cent it sat at previously. And while it may seem like just a slight increase, even the slightest increase may be too much for individuals to hold should interest rates rise even a small percentage.

Of that debt, mortgage debt rose by 1.8 per cent to $1.1 trillion; and that’s more than the average of 1.7 per cent it’s typically been during the last five years.

However, along with stats on debt, net worth data was also released, and that revealed that national net worth increased to 2.1 per cent to $7.5 trillion. While it’s not as large as we saw with the 3.2 per cent increase that was seen during the second quarter of the year, it also works out to $212,700 on a per capita basis.

In a research note, Laura Cooper, an economist at the Royal Bank of Canada said,

“Sustained robust housing market activity and the resulting continued gains in mortgage debt accumulation drove the increase in credit market debt in the quarter. 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 place of credit growth that has been in place since 2008 will resume through 2014.

“The re-emergence of the moderation in credit growth would be a welcome development for Canadian policymakers, 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.”

But the high debt burden is expected to increase, and that that will have a definite impact on the economy.

“The debt service ratio continues to fall, suggesting that the average Canadian can cope with their debt levels,” says Leslie Preston, economist with Toronto-Dominion Bank. “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.”

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