09/13/2013 11:19 EDT | Updated 10/02/2013 09:21 EDT

Canadians' Household Debt Reaches New High: $1.63 For Every Dollar Earned

American Express, Discover, MasterCard and Visa credit cards are displayed for a photograph in New York, U.S., on Tuesday, May 18, 2010. Credit-card firms caught off-guard by U.S. Senate passage of curbs on debit fees are facing what one executive sees as a 'volcanic' eruption of legislation, including possible limits on interest rates. Photographer: Daniel Acker/Bloomberg via Getty Images

OTTAWA — Canadian household debt climbed to a new high in the second quarter, turning around after creeping lower for two quarters, according to Statistics Canada.

Statistics Canada said Friday the ratio of household credit market debt to disposable income increased to a new high of 163.4 per cent in the second quarter compared with 162.1 per cent in the first three months of the year.

That means Canadians owe just over $1.63 for every $1 in disposable income they earn in a year.

"If you listen carefully, you might hear quiet gulps from the Bank of Canada,'' BMO chief economist Doug Porter wrote in a report.

Household debt and its potential impact on the economy has been identified as a key concern by the central bank and Finance Minister Jim Flaherty.

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Porter noted the prior two quarters, covering the October-March period when the key measure of debt started to headed lower, were likely viewed positively by the Bank of Canada.

"What the Bank of Canada has described as a 'constructive evolution' of household balance sheets still appears to be unfolding, but the modest deterioration in the second quarter and the recent pop in home sales raise some doubts,'' he wrote.

"The lingering question mark on this front is one reason the Bank of Canada has doggedly maintained its mild tightening bias.''

Tightening bias refers to the central bank's public position that its next move, at some point, will be to raise its key short-term lending rates. The Bank of Canada's overnight rate has been stuck at the historically low rate of one per cent since September 2010.

The turnaround in household debt comes as the housing market also appears to be regaining some of the steam let out in mid-2012 when Flaherty tightened mortgage lending rules.

Home sales and prices have started to perk up in many markets across the country even as commercial banks have edged their mortgage rates higher.

During the second quarter, Canadians borrowed $25.9 billion including $18 billion in mortgage borrowing.

In the previous quarter, Canadians borrowed $3.8 billion for mortgages _ the lowest level in four years _ and reduced other loans and consumer credit.

Total mortgage debt stood at just over $1.1 trillion and consumer credit debt reached $500 billion at the end of the second quarter.

TD Bank economist Diana Petramala said the increase in debt isn't a surprise given the pick up on home sales, but added she did not expect the trend to continue.

"In large part, the increase in household indebtedness also reflects softer income growth over the first half of this year,'' she wrote in a note to clients.

"Looking forward, as housing stabilizes and income growth picks up, the debt-to-income ratio is expected to remain close to its current, still elevated, level.''

Despite the increase in debt, however, Canadian household net worth climbed in the quarter, boosted by rising home prices.

Household net worth was up 0.7 per cent in the second quarter, led by a 1.6 per cent gain in the value of home values.

The increase in household net worth was held back by a weak quarter on the Toronto Stock Exchange, which saw its benchmark composite index fall 4.9 per cent in the quarter.

Statistics Canada said household net worth was $205,900 in the second quarter on a per capita basis.