Canadian Household Debt Is Growing Much Faster Than Asset Values

Canadian households are accumulating debt faster than assets are appreciating. Statistics Canada (StatCan) data shows the debt-to-asset ratio increased very quickly in Q4 2018. The ratio is now growing at the fastest pace since the Great Recession, and is at the highest level since 2014.

Debt To Asset Ratio

The debt to asset ratio (DTA) is the amount of debt, relative to the value of assets held. You get the ratio by dividing the total debt, by the value of the assets at the time. Higher DTAs mean a higher degree of leverage (DoL), and vice versa. The quality of asset is not considered, nor is the stability of its value – but we’ll circle back to that.

The DTA helps us understand how households will react to macro economic changes. Most important is understanding how prepared they are for an economic downturn. Expenses like bills and services can eliminated, but asset payments are less flexible. Higher DTAs mean a higher DoL, making it more difficult to cope with a recession.

Distressed households are likely to become distressed sellers. When they can’t ride out a recession or change in value, losses become permanent. Since distressed sellers determine comps, they also wipe out the net-worth of regular households. This can mean a drastic change in the value of all assets, before considering quality. Simply put, we want to see a low and stable DTA as often as possible. It’s most important when economic turbulence is approaching.

Debt To Asset Value Is Back To The Pre-Real Estate Boom

The DTA rising very quickly, and is back to pre-real estate boom times. The DTA hit 17.28% in Q4 2018, up 3.1% from the quarter before. This represents an increase of 4.4% from the year before, the highest annual increase since the Great Recession. The current level was last seen in Q4 2013, and last rose (as opposed to fell) to this level 2 quarters before the Great Recession. The accelerated velocity may be a more important take away then the actual level.

Canadian Household Debt To Asset Ratio

The ratio of debt to the total value of assets, held by Canadian households.

Source: Statistics Canada, Better Dwelling.

Canada Can Exceed Great Recession Levels Very Quickly

The current pace of growth can dwarf the Great Recession peak very fast. The quarterly growth of 3.1%, if printed for the next four quarters, would make the DTA higher than the 19.31% peak. At the annual pace of growth of 4.4%, it would take 3 years to exceed that same number. For context, peak annual growth was achieved in Q1 2009, when it hit increase 12% from one year before. Risk happens fast.

Canadian Household Debt To Asset Ratio Change

The annual percent change in the ratio of debt to the total value of assets, held by Canadian households.

Source: Statistics Canada, Better Dwelling.

We know credit growth is low, so taking an inverse perspective might give more insight. The ratio of assets to debt is 82.72%, an 0.87% decline from a year before. Since debt is growing still, this means asset values have made a drop to print this number. If debt levels stayed the same, a 15.3% drop in asset values would put Canadians at 2009 levels of DTA. For context, a drop of that size is just a correction, not a crash.

Canadian Household Asset To Debt Ratio Change

The annual percent change in the ratio of total asset values to debt, held by Canadian households.

Source: Statistics Canada, Better Dwelling.

Interest rates and credit growth are near historic lows, and asset values barely changed. A correction in asset values of ahead of a recession can lead to very high amounts of relative leverage. The higher DTAs would make it much harder to handle a recession. The current level isn’t a huge issue, but the velocity of change should be considered. Canadians can be heading into the next recession with a higher DoL than the country has ever seen. Actually, it may be higher than most have ever anticipated.

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  • Ethan Wu 5 years ago

    The setup here was getting pretty obvious when people started taking out private loans to pay for condos, that were rising at a slower rate slower than the cost of the mortgage. Especially when you consider how many people are borrowing their downpayment from existing leverage, and using it for more “asset gains.”

  • CanadaSucks 5 years ago

    Too much inflation out there. People income cannot keep up so they borrow to make the difference. Price of gasoline is back to 1.30 in Montreal area. If inflation is not contained, we look at a wave of default and bank failure. The need to raise rate to stop Canadian currency collapse.

    • Ethan Wu 5 years ago

      Gasoline is mostly due to falling Canadian dollar. The US is looking at cutting rates now, so it should provide a little relief. If Canada cuts rates, look out for soaring everything.

      • Mike 5 years ago

        I know this is off topic, but why would a falling dollar impact prices? Because if that’s the case, we’re screwed when we do QE or NIRP.

        • Mtl_matt 5 years ago

          Because it’s a global commodity. Some of it is imported (mostly Shell), and the northern states buy some of the gasoline we refine. Prices balance out with the global market. Keep in mind taxes are a big part of that 1.30$.

          • SUMSKILLZ 5 years ago

            Carbon tax should make $1.65 gas possible again. Then all those heavy SUVs and pick up trucks start to look silly from a fuel cost perspective. $600 a month for financing plus another $500 a month for fuel, $200+ for insurance….hey wait a minute, that used to be the cost of a starter mortgage not too long ago…

          • John 5 years ago

            Yes, the carbon tax is the enemy. That tax that would make up 2.6% of gas price @ $1.65 is the reason it will go that high.

            Come on man. Easy on the disinformation.

          • SUMSKILLZ 5 years ago

            Quoted “The federal carbon tax on fuels came into effect on April 1, 2019. It will increase the price of gasoline in Ontario by 4.4 cents per litre. This will rise to 6.6 cents in 2020, 8.8 cents in 2021, and 11.1 cents per litre in April 2022.”


            We also know, taxes have a easy time of rising when convenient.

          • Sideliner 5 years ago

            The “stupidity tax” (i.e., selling oil to the US at ~$35 per barrel and buying it back at ~$65 just because we cant seem to get a pipeline in the ground) does not help either.

      • Neo 5 years ago


        The Fed isn’t cutting rates at this point. The market has completely recovered from the 20% decline. Wages are up. Unemployment claims are at historic lows. They are in a neutral position but nothing out there screams cut.

  • Trader Jim 5 years ago

    Developers are even cracking down on debt quality. Landmark luxury building going up in Vancouver, won’t let the pre-sale holders sell to new buyers, because they can’t ensure the new buyers will have the money.

    This isn’t a fly-by-night developer, so it’s definitely not a cashflow issue. My read is developers are starting to responsibly handle their own risk. Consider your risk positions first, before a developer manages risk for you.

  • Snarky 5 years ago

    The 905 prices are insane with no reasonable rationale behind it. Many are selling and moving up even when only paying off 50000 on their mortgage. Same houses being bought and sold. Not sure if professional outfits are behind it. Turning up the heat on not-so-great neighborhoods. When the carousel stops nobody knows but seems like we will keep riding it a little longer…

  • Gregory 5 years ago

    Looking to score a cheap condo !! Let Prices fall !!! Please I hate renting.

    I’m paying $4400 a month for 1850 sqft condo now.

    Feel my max budget is 1.0-1.2M but everything at my size is $2M +

    Please keep up the negative chatter.

    • Sam 5 years ago

      I admire your committed fear mongering tactics… Please keep them coming lol

    • carlton 5 years ago

      If thats all it took we would have crashed 7 years ago. We need more inventory less sales and normalized interest rates instead of recessionary rates.

  • Rana 5 years ago

    In simple language will the vancouver house prices be coming down wanna buy house

  • Rana 5 years ago

    He says never

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