Canada's Condominium Magazine

Canadians better off as net worth, assets, savings rise, but so does household debt

The latest national wealth/national debt figures from Statistics Canada present an observer with some interesting options, which can perhaps best be described as seeing the glass as half full or half empty, depending on one’s disposition and tolerance for risk.

The Stats Can report begins with an upbeat headline stating that national wealth has expanded as the value of real estate has increased. Specifically, the total value of non-financial assets in the economy rose 1.4 per cent to $9.7 trillion at the end of the third quarter. The main contributor was a 1.4 per cent increase in the value of real estate. As a result, every individual Canadian was worth $270,300, an increase of $3,600 over the second quarter. At the same time, the country’s national net worth, meaning the sum of national wealth and Canada’s net foreign asset position, increased 1.7 per cent to $9.8 trillion. The increase in the national foreign asset position means that Canada’s international assets exceed its international liabilities.

So far so good, but there’s more. Household sector net worth rose 2.5 per cent to $10.1 trillion, meaning each household in the country had a net worth of $278,200. This rise was the result of increased values in financial assets and investments, as well as in real estate.

And this is where the story gets a little more complicated as debt enters the picture for the first time. On the one hand, total household debt, including consumer credit, mortgages and non-mortgage loans, reached just over $2 trillion, of which roughly two-thirds (65.5 per cent) was in the form of mortgages. The headline news in this is that credit market debt as a percentage of disposable income reached a new high: 166.9 per cent. In effect, Canadians owed $1.67 in debt for every dollar of disposable income they earned.

household-debt-oncome-leverage-statistics-canada-remax-housing-prices-assets-debt-condo-ca
Ratio of credit market debt to disposable income. Source: Statistics Canada

On the other hand, leverage, as measured by the ratio of household debt to assets, was down in the third quarter, falling from 16.9 per cent to 16.7 per cent. As can be seen in the graph below, this is significantly lower than the high of 19.3 per cent reached in 2009.

household-leverage-statistics-canada-remax-housing-prices-assets-debt-condo-ca
Ratio of debt to total assets. Source: Statistics Canada

Whether one chooses to focus on the higher debt-to-income ratio, which could be worrisome, or on the lower debt-to-asset ratio, which is somewhat reassuring, will perhaps depend on whether one has faith in the real estate market. If home prices were to decline, the debt-to-asset ratio would obviously become much less favourable. At this time, however, no one is forecasting such a decline, at least in the Toronto market. Residents in other cities may wish to look at their spending in coming months. A recent RE/MAX Housing Market Outlook for 2017 has home prices rising by as much as 20 per cent in Vancouver and 17 per cent in Toronto, while falling 6 per cent in St. John’s and 4 per cent in Calgary.

Yet another measure of how well Canadians are doing is the household debt service ratio—how much disposable income goes to “obligated” payments of principal and interest. Again, this edged down in the third quarter, from 14.1 per cent to 14.0 per cent. The interest only portion of those payments came in at 6.1 per cent.

A final positive development in the third quarter was that Canadian households increased their savings rate by a full percentage point: it rose from 4.8 per cent to 5.8 per cent.

The picture, therefore, is something like this. Canadians did indeed take on more debt in those three months ending September 30, but they also saved more and saw the value of their assets, both real estate and financial investments, increase.

Half full or half empty?

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