Winnipeg Free Press - PRINT EDITION

Household debt hits record high

But signs point to stabilization

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OTTAWA -- Canadian households continue to get into deeper debt, but the most recent data also offers a bit of a respite -- credit accumulation is slowing and there's evidence the Bank of Canada is correct in saying the problem appears to be stabilizing.

A Statistics Canada report Friday calculates the average household owed a record $164.97 in market debt for every $100 of disposable, after-tax income they earned in the fourth quarter of 2012 -- slightly more than the previous high of $164.7 in the prior three months.

That is only a few percentage points shy of where U.S. household debt levels reached before the country's real estate market collapsed, and was a key reason why Finance Minister Jim Flaherty tightened mortgage rules last July.

But the latest data represents progress in the effort to rein in risky levels of household debt in Canada, say analysts.

The fourth-quarter increase in the debt ratio was the smallest in a year, while household net worth increased by 1.4 per cent, thanks to gains in the value of stock holdings and pensions.

Earlier this month, the Bank of Canada signalled it was not as worried about debt as it had been, judging that with a "more constructive evolution of imbalances in the household sector, residential investment is expected to decline further from historically high levels."

The debt report came the same day the Canadian Real Estate Association reported resales of houses and condos fell 2.1 per cent in February, compared with the previous month, and were down 15.8 per cent from a year ago. As well, the average price for homes sold in the month slipped by about one per cent from a year ago to $368,895.

Both reports suggest that although debt and housing remain at levels economists consider unsustainable, both appear headed for a soft landing.

"I wouldn't want to bank on one or two quarters' data (so) it's a little early to declare victory," cautioned Bank of Montreal chief economist Doug Porter.

-- The Canadian Press

Republished from the Winnipeg Free Press print edition March 16, 2013 B9

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