Canadians Getting Richer: Changes in Mortgage Debt Structure

A new RBC-Pembina report finds that the demand for detached and semi-detached single-family homes in desirable GTA neighbourhoods has exceeded supply and caused home prices to go up.

A strong stock market and rising home prices helped make Canadians richer as they also trimmed household debt, albeit only slightly in the first quarter of this year.

Statistics Canada said Thursday that the level of household credit market debt to disposable income edged down to 163.2 per cent in the first quarter, compared with 163.9 per cent in the fourth quarter of 2013.

The decrease means Canadians owe just over $1.63 for every $1 in disposable income they earn in a year compared with nearly $1.64 at the end of last year.

Bank of Montreal chief economist Douglas Porter called it "a tantalizing hint that the corner is turning," but noted it did not represent a "decisive" break from the upward trend.

"Before policy-makers break out the party favours and exchange high-fives, note that the figures are not seasonally adjusted," Porter said.

"The debt/income ratio has dropped in each of the past five first-quarters, before jumping again in the spring and summer, during prime home buying season."

Mortgage debt at the end of the first quarter was up by 0.6 per cent from the previous quarter, the slowest pace of growth since early 2009, to more than $1.1 trillion at the end of the first quarter.

Meanwhile, consumer credit debt edged down 0.3 per cent from the fourth quarter to $507 billion.

The move came as household net worth grew by 2.5 per cent in the first quarter, led by a 3.2 per cent gain in the value of shares and other equities as well as a two per cent gain the value of household real estate.

On a per capita basis, household net worth rose to $222,600 in the first quarter.

TD Bank economist Diana Petramala noted that given the recent turnaround in the housing market, the debt-to-income ratio is likely to temporarily resume an upward trend over the rest of 2014.

After a slow start to the year due to the frigid and lengthy winter this year, the housing market has picked up in May.

The Canadian Real Estate Association said earlier this week that sales were up 5.9 per cent compared with April, the largest month-over-month increase in nearly four years, while the average price for a home sold in May was up 7.1 per cent compared with a year ago.

"Elevated debt levels suggest that household spending will remain moderate over the next few years and more of Canada's economic growth will have to be driven by business investment and exports," Petramala said.

She also cautioned that households are likely more sensitive to movements in interest rates than they have been in the past because of the large debts.