Canada household debt-to-income ratio slips from record high

Reuters

* Ratio slips from record high after back-to-back increases

* Ratio closely watched amid fears of debt, housing crisis

* Bank of Canada expects soft landing for housing market

By David Ljunggren

OTTAWA, March 14 (Reuters) - The ratio of Canadian household debt to income in the fourth quarter of 2013 slipped from a record high while net worth rose, bolstering the Bank of Canada's belief that the housing market is in for a soft landing.

The central bank and the Conservative government have long fretted that near record low interest rates might prompt people to take on too much debt, especially big mortgages that could increase the chances of a housing crash.

Statistics Canada said the ratio of household debt to income in the fourth quarter of 2013 slipped to 164.0 percent from a record 164.2 percent in the third quarter.

Last week, the Bank of Canada said recent data supported its view that there would be a soft landing in the nation's housing market and the household debt-to-income ratio would stabilize.

"Today's results should be mildly encouraging for policymakers, and suggest that the Bank of Canada's view that imbalances are evolving 'constructively' is reasonable," said Doug Porter, chief economist at BMO Capital Markets.

Mortgage borrowing grew by C$13.0 billion ($11.7 billion) in the fourth quarter, considerably less than the C$21.0 billion recorded in the third quarter.

The increase in mortgage debt was just 1.1 percent over the previous quarter compared to the average quarterly growth of 1.8 percent seen over the past six years.

The figures though are not seasonally adjusted and could well reflect the fact that the fourth quarter is traditionally a quieter time for house purchases.

At the end of the fourth quarter, mortgage debt stood at just over C$1.1 trillion.

The ratio in the fourth quarter fell after two consecutive increases. Bank of Canada Governor Stephen Poloz said last December that consumers had pushed up their plans to buy houses as mortgage rates started to rise.

"Today's data confirm that the risks associated with household balance sheets did not increase in the latter part of 2013," said Laura Cooper, an economist at RBC Economics.

Statscan also reported that national net worth grew by 2.7 percent to a new record high of C$7.73 trillion after advancing by 2.5 percent in the third quarter.

Household net worth advanced by 3.0 percent in the fourth quarter, led by a 5.9 percent gain in the value of shares and other equities. Household real estate gained 1.6 percent in value.

The Bank of Canada, which referred to the "risks associated with elevated household imbalances" last week, has kept its key interest rate at 1.0 percent since September 2010.

The bank has said it will not move on rates until the economy picks up and the current period of low inflation ends.

Recent data show the economy grew faster than expected in 2013 and also that inflation in January picked up notably, although it is still below the bank's 2 percent target.

Most analysts polled by Reuters expect rates to go up in the third quarter of 2015 and market chatter about a possible rate cut has all but vanished.

"Today's report is consistent with our longstanding view the Bank of Canada will not provide additional monetary stimulus to help pull inflation back towards target," said TD Securities strategist Mazen Issa.

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