Canadian Household Debt Is Surging, and Previous Quarter Revised 3 Points Higher

Canadian household debt problems are once again worsening, after taking a brief break. The ratio of household credit market debt to disposable income climbed in Q3 2021, according to Statistics Canada (Stat Can). Households are now borrowing debt at one of the fastest rates in half a decade. Unfortunately, their incomes aren’t rising in line with their debt binge.

Canadians Owe $1.77 In Debt For Every $1 They Earn

Canadian household debt is marching to new highs, and incomes aren’t even close to keeping up. Household debt to disposable income reached 177.15% in Q3 2021, up 0.2% from the previous quarter. Over the past year, the ratio climbed 2.1% higher. This is the highest ratio since Q4 2020, and it’s fast approaching the record of 184.66% in Q3 2018. An excessively low rate environment is fuel for this fire.

Canadian Household Debt To Income

The ratio of Canadian household market credit to disposable income.

Source: Stat Can; Better Dwelling.

Too technical sounding? More bluntly, this means households have $1.77 in debt per dollar of disposable income they earn. It might not sound like much, but remember some people have no debt, while others are binging on leverage. Canada’s bank regulator defines $4.50 of debt per $1 of income as “over-leveraged.” They have observed about 1 in 5 new mortgages are over-leveraged.

Canadian Household Debt To Income Change

The annual percent change in the ratio of Canadian household market credit to disposable income.

Source: Stat Can; Better Dwelling.

More Indebted Than Thought: Previous Quarter Gets A Big Revision

A quick note on the revisions in prior months. Revisions are a normal part of statistics, especially when Stat Can’s data uses so many sources. A few banks revising data, or reporting late is normal. Typically this results in a small change, barely worth taking note of, but not this time. The revision for the second quarter was bigger than the growth this quarter.

In Q2 2021, the ratio had been reported initially at 173% and was revised 4 total points higher. Debt advanced faster than income at a rate almost 50% higher than previous estimates. This highlights some of the challenges of crunching numbers during the pandemic. It’s also a reminder the trend is more important than a single change.

Canada had seen a superficial improvement to debt ratios at the start of the pandemic. More households were paying down debt than they were pre-pandemic, especially consumer credit. However, when debt is this cheap, the incentives are stacked towards borrowing more. With the central bank hesitant to raise rates, a lot more borrowing is expected near term.

4 Comments

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  • Arthur 9 months ago

    Is this debt data including all Canadian households or only households with debt or some self serving mix from the publisher?
    Depending on the methods used to collect the data, the results can be really skewed………or??

    • Ethan Wu 9 months ago

      … it’s the Stat Can national balance sheet number. If you don’t understand what this means, maybe pick up a textbook instead of suggesting it’s the publisher’s bias.

      All publishers have bias, but people who suggest a bias with understanding something they would learn in high school only think this is a clever thought because their base knowledge is below average. This “publisher bias” narrative repeated has turned into a calling card for Dunning-Kruger.

  • Tim Toon 9 months ago

    The whole system is one big ponzi scheme and the peons are the willful ponzis.

    When the entire ponzi collapses and it will good luck.

  • Ellyn D'Uva 9 months ago

    My parents paid my tuition and bought me a house but I still try to save money.
    It seems many Canadians don’t know how to save and pay down debt.

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