Question Period Note: Household Balance Sheets Third Quarter of 2024

• The net worth of Canadian households edged up 1.7% in the third quarter of 2024, following a gain of 0.4% in the previous quarter.

• The household debt-to-disposable income ratio edged down to 173.1% (-2.2 p.p.), while the debt service ratio declined to 14.7% (-0.3 p.p.).

• Canadian households balance sheets improved in the third quarter of 2024.

• The debt burden of Canadian households continues to show improvement.

• The net worth of Canadian households is almost 40% higher

• Bottom line: Household balance sheets continued to improve in the third quarter, with household net worth increasing for the fourth consecutive quarter, the debt-to-disposable income edging down for the sixth consecutive quarter, and the debt service ratio declining to its lowest level since the first quarter of 2023.

• The net worth of households rose by 1.7%, an improvement from its growth in the previous quarter (0.4%), as growth in household asset values outpaced an increase in household liabilities. Financial assets led the increase in asset values, driven by a rebound in the S&P/TSX Composite Index, while real estate values declined. The household net worth-to-disposable income ratio fell slightly to 1,003.9% from 1,005.0% in the previous quarter, reflecting an even stronger gain in household disposable income in the third quarter.

• Household credit market debt increased slightly in the third quarter (+1.0%) but remains historically weak. The increase reflected gains in consumer credit growth and mortgage borrowing. The uptick in market debt was outpaced by growth in disposable income, leading to a decline in the household debt-to-disposable income ratio to 173.1% (-2.2 p.p.)—its lowest level since the first quarter of 2021 and even further below its pre-pandemic level (181.2%).

• The household debt service-to-disposable income ratio—a measure of households’ capacity to make regular debt payments (interest and principal)—declined in the third quarter to 14.7% (-0.3 p.p.), falling below its elevated pre-pandemic level (14.9%). The ratio has declined modestly but steadily after reaching a peak of 15.1% in the final quarter of 2023.

• Outlook: Household balance sheets are expected to continue to improve but remain under pressure in the near term. While falling interest rates are a welcome development, household debt servicing costs will remain elevated as mortgage holders continue to renew at higher rates than before. Further, lower interest rates are likely to spur an increase in consumer spending and borrowing, which will support economic activity but may put upward pressure on indebtedness.

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