Canada's Housing Bubble

Dec 13, 2010 Alexandre Deslongchamps bloomberg.com

Canadian households had a higher debt-to-income ratio than their U.S. counterparts for the first time in 12 years, even as their net worth advanced during the third quarter, government figures show.

The ratio of household credit market debt-to-personal disposable income rose to 148.1 percent from 143.4 percent as income fell 1.5 percent, Statistics Canada said in a report from Ottawa. In the U.S., debts represent 147.2 percent of households’ disposable income, according to the U.S. Federal Reserve.

The Bank of Canada expects consumer spending to account for more than half of the country’s growth this year and next. The central bank said last week Canadian households have become more vulnerable in the past six months as debts have risen faster than income. The Globe and Mail reported today that the government is considering tightening mortgage rules to make it harder for households to become overextended.

“Low rates today do not necessarily mean low rates tomorrow,” Bank of Canada Mark Carney said today in a speech in Toronto. “It is the responsibility of households to ensure that in the future, they can service the debts they take on today.”

The proportion of Canadians in a “stretched” financial position “has grown significantly,” Carney said in the speech, adding that authorities continue to monitor households’ finances.

Household debt levels are a concern, Prime Minister Stephen Harper told reporters in Thetford Mines, Quebec, adding that interest rates are unlikely to go down.

Canadians now owe C$44,000 ($43,800) per capita. The last time the debt-to-income ratio was higher than in the U.S. was in the third quarter of 1998.

Reversing Decline

The value of Canadian households assets minus their liabilities increased 2.7 percent to C$6.11 trillion in the July-September period, reversing a decline in the previous quarter as stock markets advanced, the agency said.

Household net worth was 614 percent of personal disposable income, Statistics Canada said, up from 602 percent in the previous quarter.

The gain in household asset values was partly offset by a C$108 billion drop in corporate net worth and a C$9 billion decline in government net worth, which fell to negative C$53 billion. National net worth rose C$45 billion to C$6.28 trillion.

The report said companies’ credit market debt-to-equity ratio fell to 54.7 percent from 54.8 percent, as their equity issues and undistributed earnings rose more than their borrowing.

To contact the reporter on this story: Alexandre Deslongchamps in Ottawa at This e-mail address is being protected from spambots. You need JavaScript enabled to view it

To contact the editors responsible for this story: Chris Wellisz at This e-mail address is being protected from spambots. You need JavaScript enabled to view it ; David Scanlan at This e-mail address is being protected from spambots. You need JavaScript enabled to view it