After reaching a record high in Q3 of 2013, the Canadian Household Debt to Income Ratio has lowered for the second straight quarter. After becoming a talking point in the Canadian real estate discussion, the continued decrease in Canadian household indebtedness may quell housing market fears and reaffirm policymakers’ insistence that only a ‘soft-landing’ might be in store for Canadian real-estate.
On Thursday, June 19th, Statistics Canada reported a Household Debt to Income Ratio of 163.2 percent in the first quarter of 2014. This marks a decrease from 163.9 percent in the fourth quarter of 2013 and a decrease from the record high of 164.1 percent in the third quarter of 2013.
The Bank of Canada Governor Stephen Poloz and Finance Minister Joe Oliver have continually expressed their focus on watching over the Canadian housing market and the debt loads incurred by Canadians today. In previous weeks, both the CMHC and Finance Minister Oliver have reaffirmed their expectation of a soft-landing in the Canadian housing market.
Even with a soft-landing expectation, the Bank of Canada identified household debt and the potentially overvalued real estate market as the Canadian financial system’s largest vulnerabilities; however, Bank of Canada Governor Poloz stated that external factors, such as a world-wide economic downturn or other significant external catalyst, would be the main culprit behind any sort of Canadian housing market collapse.
“…today’s broad results are a tantalizing hint that the corner is turning for household debt, and lend support to the Bank of Canada’s view that imbalances are evolving ‘constructively’,” according to Doug Porter, chief economist at Bank of Montreal.
Although the decrease in the Debt to Income ratio was a pleasant and welcome signal, economists did note that the Canadian debt to income ratio is not seasonally adjusted – as families typically take the first quarter of the year to pay down their Christmas bills and gifts while consumer spending typically sees an uptick in the Spring/Summer months as homes are purchased.