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Written by Josh Sherman and provided courtesy of

A key measure of Canadian debt remains at an alarming all-time high, but tougher mortgage rules are helping households rein in spending, RBC economists suggest in a new report.

The household credit market debt ratio stayed put at 177.6 percent in the first quarter, according to Statistics Canada data published this month. That means for every after-tax dollar a Canadian household earns, about $1.78 is owed — but recent stability on this front is a positive sign, write RBC Senior Economist Robert Hogue and his colleague Economist Carrie Carswell-Freestone.

“The good news is that signs are emerging that households are getting their situation under control,” they note in a Focus on Canada’s Household Debt report.

Housing-related policies, including mortgage stress testing introduced in January 2018 that sets a higher barrier to qualifying for a loan, played a role in reducing the rate of household borrowing.

Credit-market debt climbed 3.7 percent annually in the first quarter, compared to 4.8 percent seen a year earlier. Three years ago, debt was growing at an annual rate of 5.7 percent, RBC says.

Chart: RBC Economics

“Much of that slowing has been engineered by policy makers. The introduction of more stringent mortgage qualification rules, measures to cool key housing markets and earlier interest rate hikes clearly had the desired effect to curb debt accumulation,” the report reads.

Those rate hikes — between summer 2017 and fall 2018 the Bank of Canada hiked its policy rate five times — have kept the pressure on households.

Canadian households are currently spending a 14.9-percent share of collective disposable income servicing debt as of the first quarter, the sixth in a row that ratio has increased and equal to 2007’s record high.

Chart: RBC Economics

“Pressure will persist in the near term,” the RBC economists say.

However, the interest-rate outlook has shifted this year. Previously, it was anticipated that the central bank would continue hiking its policy rate, which influences the mortgage market.

But a weaker-than-expected economy has stopped the Bank of Canada in its tracks, and some are even suggesting policymakers will slash rates. Regardless, rates for five-year fixed-rate mortgages (the most popular in Canada) recently dipped to a two-year low.

“Though with the Bank of Canada staying on the sidelines for a while, the debt service ratio is poised to stabilize in the period ahead,” write Hogue and Carswell-Freestone.

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