Canadians are borrowing less and getting paid more amid higher interest rates

Growth in disposable income is helping to offset the impact of higher interest rates on household budgets, Statistics Canada says, but economists warn that could change.

Higher interest rates are putting Canadians off borrowing, Statistics Canada said Wednesday, while boosts in income are helping to offset higher debt-servicing costs.

Statistics Canada says there was $1.81 in credit market debt for every dollar of household disposable income in the second quarter, down from $1.84 in the first three months of 2023.

Household credit market debt as a proportion of household disposable income, on a seasonally adjusted basis, fell to 180.5 per cent in the second quarter compared with 184.2 per cent in the first quarter of the year.

Meanwhile, the household debt service ratio, measured as total obligated payments of principal and interest on credit market debt as a proportion of household disposable income, was 14.79 per cent in the most recent quarter, down from 14.90 per cent in the first quarter, when it hit its highest point since 2019.

StatCan said household disposable income was up 2.6 per cent in the second quarter, helping to drive down the impact of higher debt obligations tied to the Bank of Canada’s rapid interest rate hikes since March 2022.

Seasonally adjusted household credit market borrowing fell to $17.1 billion in the second quarter compared with $20.4 billion in the first quarter as demand for mortgage loans fell to its lowest point since 2005.

TD Bank economist Maria Solovieva said in a note to clients on Wednesday that these declining figures, alongside growing household wealth and rebounding real estate valuations, “brings some good news about the state of Canadian households through the first half of the year.”

However, she cautioned that the aggregate improvements in debt-to-disposable income ratios “mask the pain felt by some Canadian households.”