Household Debt Now 165% of Disposable Income

Household debt in relation to disposable income rose to another record last quarter, and many are now wondering whether Mark Carney, Governor of the Bank of Canada, was correct to assert that families are listening to his warnings about the risks of borrowing too much.

Statistics Canada revealed on Friday March 15th that credit-market debt (such as mortgages) rose to 165.0% of disposable income, compared with 164.7% in the previous quarter. The demand for credit was largely in the form of mortgage borrowing in the fourth quarter, rising by $11 billion to a total of $1.1 trillion; the previous quarter saw mortgage borrowing increase by $19.1 billion.

The federal government has tightened mortgage lending rules four times in the last four years in order to protect Canadians from incurring insurmountable debts in their search for a home. The largest changes included gradually shortening the maximum mortgage length from 40 to 25 years and putting limits on how much people can borrow against their homes.

The only certain thing facing the next Governor of the Bank of Canada is that household debt needs to be curtailed. Even with the re-vamped mortgage rules, record low interest rates (which the Bank of Canada has said will remain for at least another year) may induce Canadians to incur mortgage debts that they ultimately cannot afford.