Canada’s sky-high household debt levels started to make their way back down to earth last quarter, as the country’s household debt-to-income ratio fell to 168 per cent from 170.5 per cent in Q3 2017.

The dip in debt has been widely attributed to a new mortgage stress test, which came into effect on January 1 and seriously cut into Canadians’ purchasing power.

What other ways did the Canadian housing market affect household debt levels last month? Livabl has rounded up the latest expert commentary to keep you in the know.

Debt is going down…

The decline in debt could be the start of a turning point for Canadian households, according to RBC senior economist Robert Hogue.

“[The decline hints] that [the] household debt-to-income ratio might have turned a corner last year after increasing fairly steadily for decades,” he writes in a recent note.

The stress test has cooled the housing market significantly, restraining growth in mortgages outstanding to its weakest rate in 17 years last quarter — just 4.5 per cent.

…but so is net worth

At the same time, Canadian households’ net worth also dipped slightly in the first quarter of 2018, as the values of their property started to fall.

“The dip in households’ net worth resulted from a marked slowdown in asset growth,” notes Hogue. “Household assets grew at their slowest pace in nine years in the first quarter, as a cooling in Canada’s housing market curbed the growth of real estate assets significantly.”

Households’ real estate holdings rose by just 1.3 per cent in the first quarter, representing the weakest increase since the 2008-2009 recession.

Elevated debt levels aren’t dropping significantly anytime soon

While Hogue may think Canadian households have turned a corner, not everyone agrees.

“[The debt data] was greeted by some as confirmation that the Bank of Canada had somehow engineered a soft landing in the housing market,” wrote Capital Economics chief North America economist Paul Ashworth, in a note earlier this week. “It hasn’t.”

Ashworth writes that the Canada is hardly out of the woods when it comes to its household debt levels, which still remain historically high.

“All things considered, we wouldn’t pay much attention to the miniscule drop back in the debt to income ratio,” writes Ashworth. “Any good news on that front was more than outweighed by the news of a drop in net worth.”

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