Last quarter was a bleak one for Toronto homeowners, as household debt levels rose while assets took a tumble.
Nationwide, the ratio of debt-to-disposable income climbed to a record high of 174 per cent, according to the latest data release from Statistics Canada. That’s thanks in large part to pricey mortgage payments, according to BMO economist Priscilla Thiagamoorthy.
“Credit market borrowing climbed faster than income, thanks to a pick-up in home loans,” she writes, in her latest report. “Meantime, household asset ratios...dropped notably. Net worth plummeted to 844.1 per cent of disposable income thanks to the one-two punch of softer real estate prices and lower equities.”
Canadian home prices, especially those in the expensive Toronto market, have been hit hard by stricter mortgage qualification rules and higher interest rates over the past year. Now, the national ratio of debt-to-household assets has reached an all-time high of 17.3 per cent.
“In other words, Canadian households now have $5.78 of assets for every $1 of debt, continuing to grind lower. And, owner’s equity in real estate drifted down to 73.5 per cent,” writes Thiagamoorthy.
RBC economist Josh Nye echoes Thiagamoorthy’s comments in his latest report, noting that the Q4 numbers mark the “largest drop in [asset] dollar terms on record.”
“The Q4 decline reflected both a steep decline in financial assets (reflecting the significant drop in equity markets late last year) and a decline in real estate values (due to a softer housing market),” he writes.
But it’s not all bad news for Toronto homeowners. For one thing, while the Bank of Canada is predicted to hike interest rates again this year, it will likely be at a slower pace than 2018. The overnight rate currently sits at 1.75 per cent.
“Clearly the [Bank of Canada] is sensitive to the challenges facing households…It’s hard to see them pushing rates up toward their neutral range (2.5 to 3.5 per cent) if it risks destabilizing household finances,” writes Nye.
The bottom line? Homeowners should brace for home prices to remain stagnant for the foreseeable future, a far cry from the heights they reached in the spring of 2017.
“A slowdown in housing and flatter price trends means real estate values won’t provide the wealth boost they have in recent years,” concludes Nye.