Household indebtedness across the country diminished in the first quarter, including the high-profile debt-to-income ratio, which decreased for the second-consecutive quarter to 168.0% from a high of 170 % in the third quarter of 2017.
Royal Bank of Canada (RBC) Economic Research reported that macro prudential regulations and the cooling of Canada’s home market were responsible for the shift, which made a positive effect on household’s balance sheet.
With the continuous slowdown of both mortgage and non-mortgage debts, debt ratings are expected to maintain this downward trend moving forward.
To date, the debt service is still stable at slightly below 14%. “This will be a key factor restraining household spending growth this year. It will also be an element keeping the Bank of Canada cautious about raising rates,” the RBC revealed.
Although not alarming, it is important to note that these improved debt metrics come at the expense of household net worth, which has dropped 0.2% quarter-on quarter due to volatility in equity markets.