Household Debt, Assets, and Income in Canada: A Microdata Study

The authors use microdata from the 1999 and 2005 Surveys of Financial Security to identify changes in household debt, and discuss their potential implications for monetary policy and financial stability. They document an increase in the debt-income ratio, which rose from 0.75 to 0.95, on average. Rising debt ratios were driven by a 50 per cent increase in mortgage balances among the middle-aged, a doubling of credit card debt among households over 55, and a fourfold increase in home equity lines of credit among small business owners and households without high school diplomas.

The authors identify rising debt-income ratios among households in the bottom income quintile as the most important development of the years 1999 through 2005, signalling greater sensitivity to rising interest rates or negative income shocks – particularly among income-poor homeowners, whose 2005 mortgage obligations totalled 72 per cent of income. Meanwhile, an increase in the portfolio share for which real estate accounts, particularly among the middleaged, suggests that household balance sheets have become more sensitive to changes in the housing market. In addition to poor households, the authors identify former bankrupts, younger households, and the self-employed as more indebted and hence at greater risk.