Choose your settings

Choose your language
Economic News

Canada: Summer Wasn’t too Sunny for Household Finances in Canada

December 12, 2024
LJ Valencia
Economic Analyst

Highlights

  • Canadian households were wealthier in Q3 2024 as net wealth increased by a solid 1.7% q/q ($288B) in the quarter. This solid advance follows gains in equities more than offsetting a modest retreat in the value of housing and increased borrowing.
  • The pace of household borrowing accelerated from the previous quarter, with households accumulating $30.1B in additional debt. Under the hood, the increase was driven by consumer lending and mortgage loans. Still, mortgage loans make up the vast majority of the increase in household borrowing ($21.4B).
  • While household credit market debt tallied $3.0T in Q3, as a proportion of household disposable income it fell for the sixth consecutive quarter to 173.1%. However, this is still not far from the historic high reached at Q1 2023 (graph 1). Regardless, 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 14.7% in the third quarter from 15% in Q2, not far from the unprecedented peak reached in Q2 2023. Despite the slight downtick, this indicates ongoing stress for households, especially as the mortgage-only debt service ratio stood at 8.0% in the third quarter, slightly below the record high of 8.2% in the previous quarter (graph 2). Fortunately, the change in the debt service ratio in Q3 shows that debt payments growth (0.2% q/q) was significantly outpaced by gains in disposable income (2.0% q/q).

Implications

While households were wealthier in Q3, today’s household balance sheet data isn’t exactly good news. Canadian households continue to struggle with high interest rates and costly mortgage payments. The impending mortgage renewal wall next year is a significant concern as more households could face greater financial strain because of higher monthly payments.

Still, Canadians demonstrate resilience in difficult times. Household consumption accelerated in Q3 2024 External link., and could accelerate further going forward as the GST is removed from some goods and cheques are sent out early in the new year. Furthermore, the savings rate rose for the sixth consecutive quarter to 7.1%—proof that Canadians are preparing for the looming drag on their household finances. Nonetheless, non-mortgage holding Canadians still face heightened financial stress, with a growing reliance on credit card debt to fuel their purchases.

There is no doubt, high interest rates are working—inflation External link. has been at or below the Bank’s 2-percent target for some time. Indeed, the labour market continues to cool down, with the unemployment rate rising in November despite job gains External link.. That being said, the economy is facing some significant headwinds next year, especially with the threat of tariffs from a second Trump administration compounding the downside risks to growth External link.. Consequently, the Q3 household balance sheet doesn’t bring much change in our outlook for monetary policy. We expect the Bank to proceed with an additional four cuts in 2025 to counteract downward pressures to their economic outlook.

NOTE TO READERS: The letters k, M and B are used in texts, graphs and tables to refer to thousands, millions and billions respectively. IMPORTANT: This document is based on public information and may under no circumstances be used or construed as a commitment by Desjardins Group. While the information provided has been determined on the basis of data obtained from sources that are deemed to be reliable, Desjardins Group in no way warrants that the information is accurate or complete. The document is provided solely for information purposes and does not constitute an offer or solicitation for purchase or sale. Desjardins Group takes no responsibility for the consequences of any decision whatsoever made on the basis of the data contained herein and does not hereby undertake to provide any advice, notably in the area of investment services. Data on prices and margins is provided for information purposes and may be modified at any time based on such factors as market conditions. The past performances and projections expressed herein are no guarantee of future performance. Unless otherwise indicated, the opinions and forecasts contained herein are those of the document’s authors and do not represent the opinions of any other person or the official position of Desjardins Group.