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Canada household debt ratio hovers near record as wealth gains

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(Bloomberg) — Canadian households kept debt at almost record levels in the first quarter, even as they benefit from rising asset values that saw their net worth rise to new highs.

Credit-market debt including mortgages, consumer credit and non-mortgage loans was 163.3 percent of disposable income in the three-month period, compared with a revised record 163.6 percent in the fourth quarter, Statistics Canada said Friday in Ottawa. Household net worth rose 3.4% in C$8.65 trillion.

Canadians have taken advantage of historically low interest rates to plow money into real estate and other assets, a practice that has fueled national wealth amid rising home and stock prices. It’s also increased the vulnerability of the country’s financial system to any rise in interest rates or an economic shock.

The Bank of Canada said in a report Thursday a crash in housing prices that are overvalued by as much as 30 percent remains the biggest risk to the country’s financial system, a danger that has edged higher on the drop in crude oil prices.

Total household credit market debt rose 0.7 percent in the first quarter to C$1.84 trillion, slightly below the pace of disposable income growth. Non-financial assets held by households, primarily real estate, rose 1.2 percent while net financial assets jumped 6.2 percent.

The gain was driven by a stronger U.S. dollar, boosting the value of assets held abroad by Canadians.

National net worth — including the government and corporate sectors — rose 2 percent to C$8.43 trillion in the first quarter, also a record.