Canadians owe $1.71 for every dollar of disposable income they have — a new record high

Canadians owe $1.71 for every dollar of disposable income they had in the third quarter of 2017, the highest amount on record.

Statistics Canada reported Thursday that Canadian households owed more than $2.1 trillion at the end of September, up 1.4 per cent from the summer. Mortgages were the biggest chunk of that debt, up 1.5 per cent in the previous three months to $1.3 trillion.

Household debt is often cited as a key risk to the Canadian economy by the Bank of Canada and others.

In a report last month, the OECD said high house prices and associated debt levels remain a substantial financial vulnerability in Canada.

"A disorderly correction would adversely impact growth and could threaten financial stability," the organization said.

Mortgage rules may have impact

"The upward trend in household debt, which started as far back as we have data (the series starts in 1990), continues unabated," Bank of Montreal economist Benjamin Reitzes said of the numbers. 

Since so much of Canada's debt picture is tied to real estate, changes in the housing market have an impact on the closely watched debt to income ratio. And Reitzes says that despite the record high, there's reason to think it could inch down in the new year.

That's because starting in January new stress test rules for uninsured mortgages come in that will make it harder for some people to get a mortgage, which will limit demand and possibly reduce overall debt levels.

But for now, there's evidence that buyers are rushing to buy before the rules kick in, which is pushing up debt loads and debt ratios at least in the short term.

"With homebuyers rushing to get into the market ahead of the new … rule change that takes effect on Jan. 1, 2018, we could see a further increase in Q4," Reitzes said. "However, that suggests we could see some flattening out of the ratio in 2018."

Other economists say they expect the ratio to get even higher, if interest rates keep rising.

Royal Bank economist Josh Nye noted the debt service ratio will increase as the Bank of Canada continues to gradually raise interest rates.

"However, the prevalence of fixed rate mortgage debt means households won't feel the increase all at once," Nye wrote.

"Rather, as today's data showed, the debt service ratio is likely to rise only gradually."

Holiday spending coming up

Scott Hannah, president of the Credit Counselling Society, said in a release that the numbers are concerning — especially heading into the holiday season when many Canadians have a tendency to overspend.

"We are not surprised by this record-breaking household debt ratio, however we are concerned that a growing number of Canadians will put themselves at risk and be unable to maintain their household expenses and reduce debt levels in the future," Hannah said.

"Canadians need to gain control of their finances and use a budget/spending plan to effectively manage their expenses."