Canada: Q3 national balance sheet and financial flow accounts data eyed – BMO CM

Canada’s household debt ratio likely hit another record high in Q3 as debt growth continued apace, while income growth couldn’t quite keep up, points out Benjamin Reitzes, Canadian Rates & Macro Strategist at BMO Capital Markets.

Key Quotes

“The rise in debt came despite a cooling housing market, as the value of sales fell 8% in Q3. With the new OSFI rules set to take effect on January 1, 2018, activity could pick up in Q4 in an effort to get ahead of the change. That suggests we’ll see yet another record high debt ratio in Q4, before we potentially get some flattening or a drop at least in the early part of 2018.”

“Seasonally, debt ratios have risen in every Q3 since 1990 (an average of 1.2 ppts), so an increase should not be a surprise. This release also includes details on household assets. Net worth as a share of disposable income pulled back in Q2, with a drop in the TSX weighing. While equities performed better in Q3, home prices pulled back, pointing to a second straight quarterly drop in the net worth to disposable income ratio. Overall, Canadian balance sheets are in decent shape, despite the persistent concerns about debt burdens. The question now is: how sensitive are households to higher rates? Time will tell.”