Residential Market Commentary - Debt rises, so does net worth

  • First National Financial LP

The ratio of household debt to disposable income has hit a new, all-time high in Canada and Canadians appear to be noticing.

The latest figures from Statistics Canada show that in the 4th quarter of 2021 Canadian households owed $1.86 for every dollar of disposable (after tax) income.  Much of that is mortgage debt.  According to StatsCan, Canadians added about $50-billion in credit market debt in the 4th quarter – more than $46-billion of that was mortgages. 

The expansion of debt, combined with a drop in household income pushed the ratio up.  The drop in income is attributed to the withdrawal of government COVID-19 supports.

In a separate report, the Angus Reid Institute finds that just over half of Canadians feel like they are being outpaced by the cost of living.

The research suggests 53% feel they cannot keep up, while 51% say they would be unable to cover a surprise expense of $1000.00.  More than a third say they have too much debt.

Inflation, coupled with the Bank of Canada’s stated policy of raising interest rates has increased worries but the StatsCan figures show the risk is mitigated by an increase in the net worth of Canadian households. 

On a national basis, household net worth—the value of all assets less liabilities—increased $706 billion to $15,903 billion in the fourth quarter.  Growth in liabilities, which rose $49 billion fuelled by the increase in mortgage debt, took a relatively small bite out of the much larger increase in the value of assets.

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