(Bloomberg) -- Canadians haven’t spent this much of their paychecks on interest costs in more than three decades.
The interest-only portion of households’ debt payments represented 9.59% of their disposable incomes in the second quarter, Statistics Canada reported Thursday.
That’s the highest level since 1992, and may capture the peak impact of what’s proved one of the fastest run-ups in interest burdens in a generation — in the first quarter of 2022, the interest-only portion of households’ debt payments represented just 5.86% of income, a record low in data going back to 1990.
The Bank of Canada started an aggressive series of rate hikes in March of 2022, bringing the benchmark overnight rate to 5% from 0.25% in less than a year and a half. The economy and price pressures are slowing, prompting officials to start an easing cycle in June. They have since lowered the policy rate to 4.25%.
But the data capture the acute pain for Canadian households, who are, on average, some of the most indebted among advanced countries and are slowing their consumption.
On an unadjusted basis, interest payments rose to C$43.8 billion ($32.2 billion) in the second quarter of 2024, up 14% from a year ago. That’s more than double the average amount Canadians were allocating to debt payments in the decade before the pandemic.
Some measures of indebtedness are improving as higher borrowing costs have crimped Canadians’ debt binges, weighing on sales activity in the country’s housing market and slowing the accumulation of mortgage loans relative to incomes.
Credit market debt to disposable income fell to 175.5% during the three months ending in June, the fifth consecutive decline in the metric. In other words, there was C$1.76 in credit market debt for every dollar of household disposable income.
Household income growth remains elevated, and rose at a 7.6% annualized pace in the second quarter, a boon for consumers who lost purchasing power during one of the most profound inflationary and interest cost spikes in decades. Canadians are also putting more of their income away for a rainy day — the household saving rate increased to 7.2% in the second quarter.
The broader debt service ratio, which includes principal payments, rose to 14.97%, near a record. Net worth per capita rose 0.7% to C$467,683, the agency said.
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