(Corrects figure in 11th paragraph to C$550 billion from C$550
* Ratio 163.2 pct in Q1 and 163.9 pct in Q4
* Ratio hit a record 164.1 pct in Q3; rose through recession
* Officials see soft landing for housing and household debt
By Randall Palmer
OTTAWA, June 19 The ratio of Canadian household
debt to income edged down further in the first quarter from the
record high it hit last year, buttressing policymakers'
expectations that a soft landing is in store for the housing
market and family indebtedness.
Statistics Canada reported on Thursday a ratio of 163.2
percent in the first quarter. The ratio reached a record high of
164.1 percent in the third quarter of last year, and dipped to
163.9 percent in the fourth quarter.
In relative terms, the decline in the first quarter was tiny
for a measure that jumped from 108.5 percent in early 2000 to
129.2 percent in 2006, and then rose inexorably in the following
years as Canada avoided the real estate crash that afflicted the
Finance Minister Joe Oliver and Bank of Canada Governor
Stephen Poloz have been watching the housing market and
household debt levels for signs that consumers are being
overstretched but they have been relatively sanguine about
Oliver said this week he expected a soft landing in the
housing market. The Bank of Canada said last Thursday it
continued to see "a constructive evolution in housing market
imbalances and household credit".
The bank said, however, that household debt and overvalued
housing remain the financial system's biggest vulnerability,
with housing valuations stretched and overbuilding in some parts
of the market.
Economists cautioned that the debt-income ratio is not
seasonally adjusted. It typically declines in the first quarter
as households pay off Christmas purchases and hold off buying
homes until spring and summer.
"Still, today's broad results are a tantalizing hint that
the corner is turning for household debt, and lend support to
the Bank of Canada's view that imbalances are evolving
'constructively'," said Bank of Montreal chief economist Doug
"Gathering signs that debt is close to stabilizing suggest
that the bank can focus more on supporting growth (i.e. staying
dovish) and less on guarding against too-rapid household debt
growth (i.e. talking hawkish)."
With interest rates very low, the debt-servicing ratio was
at a historic low of 6.97 percent in the first quarter on a
seasonally adjusted annual basis. That ratio, of course, would
rise if interest rates rose.
Stepping back further, however, Capital Economics' Canada
economist David Madani pointed to housing inflation. The value
of Canadian residential property has tripled to a record C$3.8
trillion ($3.5 trillion) this year from C$1.3 trillion in 2000.
Only C$550 billion of that is from renovation and new home
building. The rest is pure inflation.
Canadian households remain dangerously exposed to rate
hikes, he said. "Furthermore, should house prices drop back, as
we fear over the next few years, then the resulting decline in
household net worth would act as a significant constraint on
Statistics Canada officials said the ratio of household debt
to income in the United States, which has been deleveraging
since the subprime market crash, was 136.6 percent in the first
quarter but that the numbers cover slightly different data. They
said the closest approximation to the U.S. ratio would put
Canada's at 160.2 percent.
(Reporting by Randall Palmer; Editing by Chizu Nomiyama; and