Canada’s housing slump deepens as household debt rapidly increases

Canadian home values fell last year for the first time in three decades, including in the most expensive cities, as Statistics Canada shows household debt burdens grew faster than income in the closing months of 2018.

The value of residential real estate in Canada held by households dropped CAD $30 billion in the fourth quarter to CAD $5.10 trillion, from CAD $5.13 trillion in the same quarter the previous year. The 0.6 percent decline is the first decrease in country-wide home values in data going back to 1990. New home prices fell 0.1 percent in January from a year earlier, marking the first decline since 2009. While the index doesn’t include condominiums, the weakness was driven by declines in the Toronto and Vancouver regions, which fell 1.5 percent and 0.3 percent respectively. On a seasonally adjusted basis, Statistics Canada said households borrowed CAD $21.2 billion in the fourth quarter as mortgage loan demand rose CAD $2.3 billion to CAD $12.3 billion. Household credit market borrowing fell 19.5 percent to CAD $84.6 billion in 2018, the lowest level of borrowing since 2014.

The household debt to disposable income ratio hit a record 174 percent in the fourth quarter, reflecting a sharp slowdown in economic growth at the end of last year. Canadians are spending a larger proportion of their income on servicing that debt. The debt service ratio (the proportion of a household’s income that goes to paying off principal and interest on debt) rose to 14.9 percent in the quarter, the highest level since the fourth quarter of 2007. This ratio increased for a fifth consecutive quarter and matched a record-high.

Credit market debt, which includes consumer credit and mortgage and non-mortgage loans, totalled nearly CAD $2.21 trillion in the fourth quarter. Mortgage debt reached nearly CAD $1.44 trillion, while consumer credit and non-mortgage loans combined to total CAD $769.4 billion.

Earlier this month, Equifax Canada reported that consumer delinquencies climbed higher in the fourth quarter of 2018 and the credit monitoring company warned that rising delinquency rates are likely to become the norm this year. It said the 90-day mortgage delinquency rate rose by 1.5 percent from the fourth quarter of 2017 to 0.18 percent at the end of last year. The comparable non-mortgage rate was up 0.4 per cent to 1.07 percent.