Canadians’ household debt levels continue to slow, at least when it comes to mortgages

Ever since the introduction of a new mortgage stress test in January, Canadians’ mortgage debt levels have been on the decline, and last quarter was no exception.

Mortgage borrowing declined by $3.6 billion in the second quarter of 2018, according to the latest data release from Statistics Canada.

“On a seasonally adjusted basis, total credit market borrowing slowed for the second consecutive quarter as households borrowed $19.6 billion, down from $22.2 billion in the previous quarter,” reads the report. “While consumer credit increased, this was more than offset by a decline in mortgage loans.”

But, even as mortgage debt begins to decline, Canadians’ household debt-to-income ratio remained relatively unchanged, as a cooling housing market led to a drop in residential property values.

“Growth in residential real estate has proceeded at a slower pace over the last five quarters, due to more moderate housing resale prices,” reads the report. “Overall, the debt-to-asset ratio remained relatively unchanged as growth in assets narrowly outpaced growth in liabilities.”

Many economists remain concerned about Canadians’ household debt levels, which remain some of the highest in the world, despite the falling mortgage debt. Earlier this month, BMO senior economist Benjamin Reitzes wrote that the problem was far from solved.

“Risks around housing appear to have dissipated with the national market stabilizing in recent months,” he wrote. “[But] household debt is an issue that isn’t going to be resolved anytime soon.”

Reitzes notes that if the trend continues, debt levels could lower to a more reasonable level, but that the process will be a slow one.

“The [Bank of Canada] is continuously collecting data on how households are coping with rising rates, while the macro data suggest the moves have been manageable thus far,” he writes. “The slowing housing market and new mortgage rules have caused debt growth to decelerate, but it’s going to take time to work off debt burdens and bring debt ratios down.”

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