- LJ Valencia
Economic Analyst
Economic News
Canada: Household Finances Ended 2024 on a High Note
March 13, 2025
Highlights
- Canadian households were more prosperous in Q4 2024 as net wealth increased by a solid 1.4% q/q ($236B) in the quarter. This solid advance follows gains on equities and foreign investment holdings, more than offsetting increased borrowing. Household net worth rose in all four quarters of 2024.
- The pace of household borrowing rose for a third consecutive quarter, with households accumulating $40B in additional debt. Under the hood, the increase was driven primarily by mortgage loans ($29B) and to a much smaller extent by consumer lending.
- Household credit market debt tallied $3.0T in Q4, and as a proportion of household disposable income rose for the first time in seven quarters, to 172.8% from 172.4% in Q3. Household indebtedness remained only slightly below the historic high reached at Q4 2021 (graph 1). Canadian households were the most indebted in the G7 by a wide margin in 2023, and the 2024 data suggest this likely hasn’t changed.
- The household debt service ratio—the share of disposable income directed toward debt payments—declined ever so slightly to 14.4% in the fourth quarter from 14.6% in Q3. While an improvement, that’s still not far from the unprecedented peak reached in Q4 2023. Despite the slight downtick, this indicated ongoing stress for households, especially as the mortgage-only debt service ratio stood at 7.8% in the fourth quarter, slightly below the record high of 8.2% in Q4 2023 (graph 2). This decline was motivated by modest disposable income gains (0.8% q/q) and debt payments slightly declining by 0.6%.
Implications
Today’s balance sheets data showed us that Canadian household finances were on an increasingly solid footing at the end of 2024. That allowed the savings rate to remain elevated, albeit slightly low, even as household spending in Q4 2024 External link. was the strongest we’ve seen in two years. This strength in consumption was partially driven by government supports such as the GST and HST tax holiday. Indeed, retail sales External link. experienced a boost in December due to GST and HST tax holiday. Other factors such as the end of electrical vehicle rebates, the effects of cumulative interest rate cuts, and a solid job market drove strong consumption in Q4. The federal government’s new policies to slow population growth External link. could also result in reduced availability of labour, pushing wages up and further supporting Canadian income growth. All in all, Canadian household budgets were well positioned to improve in the year ahead.
However, this isn’t a sunny prelude to 2025. There are significant headwinds that could place greater financial stress on Canadians. The mortgage renewal wall that is about to hit this year is a major concern as more households could face higher monthly mortgage payments. The imminent threat of stiff US tariffs cast significant downside risks External link.. A trade war could result in Canada entering a recession, adversely affecting employment, inflation and the financial health of Canadians. As the new Bank of Canada survey data published yesterday suggests, households are keenly aware of these risks and are planning to scale back on spending as a result, exacerbating any economic downturn originating from US trade policy.
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NOTE TO READERS: The letters k, M and B are used in texts, graphs and tables to refer to thousands, millions and billions respectively.
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