Canadian household debt hits new record at 152 per cent of income

Canadian households have hit a dubious new record for debt.

Fresh Statistics Canada data shows the ratio of debt to personal disposable income rose to 152 per cent last quarter, up from 150.6 at the end of 2011.

The number will likely be of concern to Mark Carney, who heads the Bank of Canada, which warned again this week that the record level of household debt leaves Canadians vulnerable to an economic shock.

The first quarter numbers show that despite the increase in debt as a percentage of disposable income, borrowing actually slowed — by 0.9 per cent.

As well, household net worth rose to $185,800 from $182,900 the previous quarter, mostly due to gains in the value of stock investments and pension assets.

The increase net worth reflects a 3.7 per cent rise in the Toronto Stock Exchange index during the first three months of 2012, a gain that has been completely eliminated in the second quarter. The main Toronto index is currently down about six per cent since the beginning of the year.

During the first quarter, Canadians were modestly better off financially with their credit market debt as a percentage of assets falling slightly to 24.9 per cent from 25.1 per cent.

“Growth in household disposable income slowed in the quarter as a result of a decline in household investment income and an increase in personal income taxes and other social contributions,” the agency explained.

“This slowdown was more pronounced than the slowdown in credit market debt, and a result, the ratio … increased to 152 per cent.”

Still, Carney has warned that much of the appearance of financial soundness is based on home price values remaining at elevated levels. A drop in house prices would erode their wealth and an economic shock or rising interest rates would leave many households challenged to meet monthly interest payments.

In a report released Thursday, the central bank said a three per cent rise in the unemployment rate — similar to what occurred in the last recession — would almost triple the number of indebted households who would be placed in arrears on payments, from the current 0.5 per cent to 1.3 per cent.

TD Bank economist Diana Petramala said households can no longer count on asset price gains to do the saving for them.

“Households beware — with interest rates low, the cost of servicing debt remains low. However, the excessive borrowing of late has left Canadians more susceptible to the future rise of interest rates,” she said.

“Even a one percentage point increase in interest rates could push the cost of servicing debt significantly higher.”

On a national accounts basis, which includes governments and the corporate sector, the first quarter saw a two per cent increase in net worth to $6.7 trillion, or $193.500 per person.

The advance was driven by higher asset values, as national wealth increased 1.5 per cent to $6.9 trillion, while net foreign debt was $0.2 trillion, a 13 per cent decrease from the fourth quarter of 2011.