Canadian Household Wealth and Debt (Q2 2021)

Ksenia Bushmeneva, Economist | 416-308-7392

Date Published: September 10, 2021

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Household wealth gains moderate while credit growth ramps up in Q2

  • Canadian household wealth continued to rise at a good clip in the second quarter of the year. The value of household net worth edged up by 3.7% in Q2, and was 19% higher than a year ago. 
  • The pace of asset appreciation remained robust but moderated somewhat relative to the red-hot growth seen in Q1. This was mainly due to slower growth in the value of non-financial assets, where growth moderated to 2.6% (down from 8.2% in the prior quarter). The value of financial assets advanced by a stronger 4.6% on the quarter, thanks to strength in equity markets as well as renewed growth in currency and deposits, which were boosted by higher savings during the third wave of the virus and the associated restrictions on non-essential shopping. 
  • While asset appreciation has moderated, the liabilities side of the balance sheet grew at a brisk pace. Household debt rose by 2.5% (seasonally adjusted) - nearly double the pace seen in the prior two quarters. The main driver was once again mortgage credit, which advanced by 3.4% on the quarter and was up nearly 10% from the year ago level. This marked the record quarterly increase in mortgage credit since data tracking began in 1990. Growth in non-mortgage and consumer credit was more modest but also accelerated on the quarter. In particular, credit card balances rose for the first time since the second half of 2019.    
  • The debt service ratio edged down in Q2, declining to 13.3% (down from 13.5%). The slight improvement in the relative cost of servicing debt was due to the fact that disposable income outpaced growth in debt payments, which continue to benefit from low interest rates. Even though total household debt is up nearly 7% from a year ago, interest payments are 4.3% lower. 
  • Growth in household debt outpaced gains in disposable income last quarter, leading to an uptick in household leverage. The debt-to-income ratio edged up to 173.1% down from 172.6% in Q1.   

Key Implications

  • Today's report largely reaffirmed that household finances remained in good shape through the third wave of the pandemic. While gains in asset values have moderated, household wealth continued to rise at a good clip and was still significantly higher than it was a year ago. Household income and the savings rate also improved in Q2, with the latter staying in the double-digit territory for the fifth consecutive quarter. Perhaps one fly in the ointment was the rapid growth in borrowing. However, low interest rates and still elevated disposable income are helping to keep the lid on debt servicing costs for now. 
  • Debt servicing costs are likely to remain manageable in the near term. Earlier this week, the Bank of Canada has kept the key interest rate unchanged and reiterated that the rate would remain at its effective lower bound until economic slack is absorbed. With the Delta variant dimming the outlook, the liftoff in policy rates is unlikely until at least the second half of 2022. 
  • Mortgage credit was the main contributor to growth in household debt for a while now, but consumer credit balances are also starting to trend higher. With restrictions easing, consumers began to reorient their spending from goods to services in Q2, many of which – such as travel, dining and entertainment – tend to be purchased with a credit card. While on the upswing recently, demand for consumer credit may be volatile in the coming months, reflecting a potential worsening in consumer sentiment on the back of rising caseloads and hospitalizations.