Pandemic steadily eating into household savings

Amid the COVID-19 pandemic, as many as 20% of Canadian households have only two months or less of mortgage payments saved up, according to recent Bank of Canada calculations.

Meanwhile, around 33% have four months of payments. For perspective, the median-earning household in Canada has sufficient liquidity to cover approximately nine months, the central bank estimated.

“All of these numbers assume no additional debt being carried, which would lower the value,” Better Dwelling said in its analysis of the BoC data. “Bank deferrals aren’t expected to relieve all of this pressure. Many industries expect the pandemic fallout to last more than a year.”

Statistics Canada’s data last week showed that household credit market debt as a share of disposable income grew to 176.9% in the first quarter, from 175.6% in Q4 2019.

The coronavirus might aggravate this particular weakness of the national economy, said Priscilla Thiagamoorthy, an economic analyst at BMO Capital Markets.

“We could see a blip in the next quarter as the ratio declines amid a slowdown in borrowing and government measures shore up incomes,” Thiagamoorthy said. “But with the economic downturn deeply impacting income growth and low rates enticing borrowing, the debt ratios will likely hit fresh record highs in the coming quarters leaving households even more indebted.”

StatsCan reported that overall credit market debt amounted to $2.33 trillion in Q1 2020, with mortgage debt representing $1.53 trillion.

MBN

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