Higher interest rates continue to push up household debt payments, according to a recent report by RBC Economics.
“Disposable incomes have, for now, been keeping up to hold the household debt servicing ratio essentially unchanged over the last year. But household debt payments will continue to rise even with the pivot from the BoC to cut interest rates last week as the impact of previous rate hikes feed into household debt payments with a lag,” it said.
Mikhail Nilov
“And a softer labour market means income growth won’t be sustained at its recent pace. The combination of rising debt payments and softer labour markets are expected to push the household debt service ratio higher over the second half of this year and will keep a cap on consumer spending growth even as interest rates edge lower.”
Key findings from the RBC report:
- The Canadian household debt servicing ratio (the ratio of debt payments to disposable incomes) edged down to 14.9% in Q1/24 from the 15.0% in Q4/23;
- Total household debt payments grew by 7.8% year-over-year – led by an 8.4% surge in mortgage payments driven by higher interest costs. Growth in non-mortgage payments also rose sharply (+7.0%). But household disposable income including interest payments also increased significantly– expanding by 8% year-over-year to (slightly) outpace the growth in total debt payments;
- Canadian households’ debt to disposable income ratio lowered again in Q1/24, from 178% in Q4/23 to 176.4%, marking a fourth consecutive decline;
- Household credit market debt edged up 0.9% in Q1 as mortgage borrowing activity was softer in the face of continually weak affordability conditions;
- Household net worth continued to expand in Q1/24, up by 4.6% from a year ago. Recent gains in asset values were largely driven by the rally in equity markets into Q1, with S&P 500 and S&P/TSX Composite Indexes both jumping higher, by 12.6% and 5.8% respectively. Additionally, residential real estate values rose $213 billion in Q1/24, following two quarterly declines in the second half of 2023;
- Canada’s household savings rate rose to 6.9% in Q1/24, from 6.2% in the fourth quarter of 2023, given the household disposable income grew at a faster pace than consumption.
Mario Toneguzzi
Mario Toneguzzi is Managing Editor of Canada’s Podcast. He has more than 40 years of experience as a daily newspaper writer, columnist, and editor. He was named in 2021 as one of the Top 10 Business Journalists in the World by PR News – the only Canadian to make the list. He was also named by RETHINK to its global list of Top Retail Experts 2024.
About Us
Canada’s Podcast is the number one podcast in Canada for entrepreneurs and business owners. Established in 2016, the podcast network has interviewed over 600 Canadian entrepreneurs from coast-to-coast.
With hosts in each province, entrepreneurs have a local and national format to tell their stories, talk about their journey and provide inspiration for anyone starting their entrepreneurial journey and well- established founders.
The commitment to a grass roots approach has built a loyal audience on all our social channels and YouTube – 500,000+ lifetime YouTube views, 200,000 + audio downloads, 35,000 + average monthly social impressions, 10,000 + engaged social followers and 35,000 newsletter subscribers. Canada’s Podcast is proud to provide a local, national and international presence for Canadian entrepreneurs to build their brand and tell their story
