Surging disposable income in Canada outpaced debt growth in the first quarter, bringing the nation’s household debt-to-income ratio down from record highs.

Household credit market debt as a proportion of disposable income dropped to 182.5 per cent, from a record 185 per cent in the final quarter of 2021, Statistics Canada reported Monday. Household debt grew 2 per cent, compared with a 3.3 per cent gain in disposable income in the first three months of the year. Net worth rose 2.6 per cent to $17.6 trillion (US$13.7 trillion).

The data suggest Canadians were in better financial shape to handle higher interest rates at the beginning of the year, supported by strong income and real-estate gains. The national balance sheet report is likely to reassure the Bank of Canada that households can withstand further increases, with markets expecting a third consecutive half-point hike next month.

Much of the net worth gains are from Canada’s hot housing market. Real estate as a percentage of household disposable income -- an indicator of housing affordability -- continued to move higher, reaching 583.7 per cent in the first quarter, compared with 509.4 per cent a year earlier.

The housing market has cooled in the second quarter, with sales slowing substantially. Prices dropped for the first time in two years in April, and the market is expected to continue slowing as the Bank of Canada ratchets up borrowing costs. The benchmark overnight interest rate, which was holding at an emergency low of 0.25 per cent until March, is seen rising to at least 3.25 per cent by the end of this year.

Higher interest rates and debt service costs will test Canadian households, some of the most indebted among advanced economies, in coming months.

Mortgages remained the largest contributor to the heightened borrowing at $45.4 billion, down from $46.1 billion in the fourth quarter of 2021.