03/12/2015 08:56 EDT

Canadian Household Debt Hits Record High Of 163.3% Of Disposable Income

OTTAWA - Statistics Canada says the ratio of household debt to disposable income hit a new high in the fourth quarter as incomes increased at a slower pace than consumer borrowing.

The agency said Thursday leverage, as measured by household credit market debt to disposable income, reached 163.3 per cent in the quarter.

That means households owed about $1.63 in consumer credit, mortgage, and non-mortgage loans for every dollar of disposable income.

BMO chief economist Doug Porter said the increased debt is not surprising given the Bank of Canada's decision to cut its key interest rate by a quarter of a percentage point in January.

"This is the thanks consumers get for responding predictably to the incentive of record-low interest rates, and effectively backstopping the economy for the past five years," Porter said in a report.

However, Porter noted that although debt has been rising, financial assets have too, as stock markets have rebounded and Canadians have been putting more away in their savings accounts.

Household net worth rose 0.9 per cent in the fourth quarter, the slowest rate in six quarters.

On a per capita basis, household net worth was $233,000 in the fourth quarter.

"Amid the cacophony of warnings, balance sheet repair is in fact quietly underway among Canadian households thanks to a slight rise in savings and long-term equity market gains," Porter said.

"While debt growth has perked up again, with the Bank of Canada’s surprise January rate cut adding fuel to the fire, the expected cooling in the housing market — at least in Alberta — should cap mortgage growth."

Canadians' finances are vulnerable to a shock, for instance a sudden rise in interest rates or overall weakness in the economy, so a slowdown in household debt growth would be "welcome," Porter said.

"Still, the singular focus on debt portrays an overly negative picture of Canadian household finances, which have proven incredibly resilient this cycle and likely still have enough cushion to provide a soft landing for spending in the year ahead."

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