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Economic News

Canada: Despite higher asset values, households struggled in Q1

June 14, 2023
Randall Bartlett
Senior Director of Canadian Economics


  • Household net worth advanced in Q1 2023, up 3.4% q/q, propelled by gains in equity markets and real estate. The 3.2% increase in the value of real estate followed three consecutive quarters of decline. 
  • The pace of household borrowing decelerated further in the first quarter, with the stock of household credit market debt (including consumer credit as well as mortgage and non-mortgage loans) rising 0.6% over Q4. Mortgage debt, which makes up about three quarters of the total household debt outstanding, advanced at the slowest quarterly pace since 1999 (0.5%).
  • Meanwhile, household disposable income lost ground in Q1 (-1.0%), as an increase in household compensation (1.7%) was more than offset by a decline in government transfers and rising interest costs. Households also reported repayments related to COVID-19 support programs in Q1. When combined with still strong consumption growth (2.1%), the savings rate dropped to 2.9%—its lowest level since the end of 2019. 
  • Household credit market debt as a proportion of disposable income rose to 184.5% from 181.7% in 2022Q4. That is just shy of the historical peak of 184.7% reached in 2022Q3. At the same time, the household debt service ratio moved higher to 14.9% in Q1 from 14.4%. This was the largest quarterly increase since 2020Q3, pushing the household debt service ratio to its highest level since 2019Q3. 


The Q4 National Balance Sheet Accounts give a mixed picture of how Canadian households are faring. Incomes are struggling to keep up with consumption, even when excluding the drag from government transfers, and debt continues to pile up. That said, the slowing pace of credit growth demonstrates households are cutting back on borrowing, implying that higher interest rates may be having the desired impact. However, the rebound in asset values in Q1 muddies the waters, particularly real estate. And with the further rebound in home values in April, this suggests the Bank of Canada’s work wasn’t quite done in Q1 and further supports the interest rate hike in June. 


Looking to the household balance sheet data for Q1, there are signs that the Bank of Canada’s rate hikes have had some intended effects. But sustained economic activity and inflation have led central bankers to conclude that more tightening was warranted. The fact asset values continued to increase tends to lend a bit of additional support to this assessment. As a result, we anticipate that the Bank will hike one more time in July and leave the door open to another rate hike thereafter if warranted by the data.