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Youngest households reduce mortgage debt

Under-35 households lead the way in reducing mortgage debt, StatCan reports

Canada’s youngest demographic of homeowners is the only group to have reduced their mortgage debt since rates started rising in 2022.

New data from Statistics Canada found that households where the major income earner is 35 or younger reduced their overall mortgage debt by 5%.

All other age group of household, meanwhile, saw their mortgage debt grow by an average of 1.3% from the third quarter of 2022 to Q3 2023.

StatCan says there are various reasons why households in the youngest age group—those aged less than 35 years—may be reducing their mortgage balances.

“Prospective homeowners may be turning away from the housing market due to affordability concerns, while existing homeowners who purchased a home when interest rates were much lower a few years ago may be paying off their existing mortgage debt balances or moving into more affordable accommodations,” the agency said.

Change in average household mortgage debt by age group of major income earner

Debt-to-income ratios also fall for youngest demographics

The data also found the country’s youngest households saw their debt-to-income ratios decline, although their debt-service ratios increased year-over-year.

The under-35 age group saw their average debt-to-income ratio fall to 165.2% in Q3 2023, down 10.7 percentage points compared to the previous year. StatCan said the decline was due to reductions in mortgage debt combined with strong wage growth.

Meanwhile, those ratios rose over the same period for the 35-44 demographic (+6.2 percentage points to 255.9%) and the 55 to 64 age group (+5.9 percentage points to 164.2%).

“Even though the decline in the debt-to-income ratio for the youngest age group indicates that they are carrying less debt, they continue to pay more to service their remaining debt due to increases in interest rates,” StatCan noted.

The interest-only debt-service ratio (DSR) for those aged 35 to 44 rose 3.1 percentage points to 11.5% in Q3, while those under 35 saw their debt-service ratio rise 2.4 percentage points to 9.7%.

Overall debt continues to rise

Overall household credit continues to grow, although the rate has slowed considerable since the Bank of Canada started hiking interest rates in early 2022.

Total liabilities for households increased by $7.4 billion in November, up 0.3% month-over-month to total $2.9 trillion, Statistics Canada said.

Mortgage debt rose by $5.4 billion in November, up 0.3% from October and +3.8% year-over-year.

“Persistently high interest rates and inflation are likely to continue to strain households’ ability to make ends meet without going further into debt, especially vulnerable groups…” StatCan said.