Canadians may be carrying record high levels of debt, but overall household balance sheets are in pretty good shape, according to economists at BMO Capital Markets.

New research by BMO shows that while debt has risen, household savings levels and net assets have also rebounded in recent quarters.

BMO estimates that total household net financial assets rose to $2.7 trillion in third quarter. Meanwhile, total assets, including real estate, surged to an estimated $6 trillion – a new all-time record high, according to Douglas Porter, deputy chief economist at BMO Capital Markets.

“While debt has climbed, household assets are still more than five times as large as those debts,” Porter said in a virtual roundtable discussion on Wednesday. “So household net worth has actually been rising pretty steadily over the last couple decades.”

Porter admits that there’s reason to be concerned about rising levels of borrowing. Canadian household debt has been growing by more than 7% in the past year, and is now almost as high as U.S. household debt levels, when compared on an apples-to-apples basis.

A cooler housing market and slower consumer spending will reduce the rate of debt growth to about 5% to 6% in the year ahead, according to Porter. But that will still outpace personal income growth, which is expected to be 4% to 5% next year.

“Debt will be growing a little bit faster than income, even in 2011,” he said. “This issue and the related concerns about household debt is simply not going to go away any time soon.”

Still, he said there’s been disproportionate attention on rising debt levels, portraying an “overly negative picture” of overall household finances in Canada.

“This singular focus on the debt side of the balance sheet overlooks the very clear improvement underway that we’ve seen on the assets side of the ledger in the past year or so,” Porter said. “When you take this into account, Canadian household finances are not nearly as stretched as commonly perceived when you just focus on the debt side.”

The household savings rate has also been on the mend, Porter pointed out. He said it’s averaged about 4% in the past year, which represents a substantial improvement from a low of 2% in 2005.

A more healthy savings rate would be about 6% of personal income, but Porter said it’s normal for savings to be low when interest rates are low.

“Given the very low, low level of interest rates, it’s not at all surprising that Canadians are saving less than what would be considered ideal,” he said.

IE