The market giveth, the market taketh—especially during an interest rate-driven economic cycle. Statistics Canada (Stat Can) data shows household net worth made a sharp drop in Q3 2022. The quarterly decline was so sharp, it wiped out a year of headline-making growth. It was the first time annual growth turned negative since the Great Recession.
Canadian Household Net Worth Drops Over A Year of Gains
Canadians experienced a sharp decline in their net worth last quarter. Household net worth climbed to $15.1 trillion in Q3 2022, down 2.1% ($331.7 billion) from the previous quarter. It brought the total 1.2% ($182.3 billion) lower than the same month last year, making it the first negative annual growth since 2009. Also worth emphasizing is the quarter’s drop was big enough to wipe out all annual growth over the past year. Ouch.
Canadian Household Net Worth
The aggregate net worth (assets less liabilities) of Canadian households in trillions of dollars.
Source: Statistics Canada; Better Dwelling.
Falling Asset Prices Are The Biggest Contributor To Net Worth Drop
Net worth erosion was primarily due to falling asset values in almost all classes. Households held $17.9 trillion in assets in Q3, down 1.6% ($290.5 billion) from the previous quarter. The value was virtually flat compared to last year, meaning those big gains in Q1 2022 are now gone. That shouldn’t be too surprising, considering everyone is discussing falling asset values, everywhere.
Canadian Household Saw Their Net Worth Fall For The First Time Since 2009
The annual growth of household net worth in percentage points.
Source: Statistics Canada; Better Dwelling.
Households Have Accumulated A Massive Debt Pile
A household’s net worth is its assets less liabilities, and that huge debt pile is a liability. Canadian households owe $2.84 trillion in Q3 2022, up 1.5% ($41.2 billion) from the previous quarter. The debt pile is 7.5% ($197.4 billion) higher than the same quarter last year. It’s a huge amount of debt, especially in contrast to the income households in the country make.
Falling households’ net worth presents a few problems, including liquidity issues. Few people are willing to purchase assets while they’re falling in price. However, the biggest issue has to do with how people feel about falling asset prices.
When people feel wealthy, they consume extra because times are good. They aren’t worried about losing their job, or where their next paycheck is coming from. This is called a wealth effect—and a positive wealth effect is desired.
A negative wealth effect occurs when net worths decline. People tighten their belts, and reduce consumption, resulting in slower economic growth. The low rate-driven positive wealth effect is about to balance with a negative effect due to high inflation and rising rates.
That’s using Statistics Canada bonkers real estate valuation models that don’t actually mean anything. The home price contraction is now 15% and the TSX is down 5%, so how did networth only fall 2%?
No offense to you Daniel, but the numbers that come out of Canada are ludicrous and optimized for the upside all the time. They would fail a basic audit in corporate compliance.
Excellent observation!
There was a similar example of data bias I observed regarding recent unemployment figures. The UE figures do not compute when comparing to population dataset.
Just the beginning. 🔥
Blame Tiff and the BOC. Those clowns are trying to push our net worth down after they probably positioned themselves to gain.
Oh nice. The inflation fighters are here. LOL
We always knew this would happen as soon as interest rates normalized and people realized they can buy 20 houses in the USA for the same money as they spend on one house in Canada.
Canada is finished for 20 years – Buy in USA. Rent in Canada.
I would like to keep asking the same (stupid) question. Why ARE Canadian households (and mind you, we’re not talking about “investors” and “speculators”) holding so much debt? Is it that they like to live in 15-bed mansions while driving delivery trucks? (no offense intended, just an example). Or is it that 2-bed townhomes cost as much as a mansion should in a more reasonably structured economy? I could be totally wrong, but I always get this that Better Dwelling thinks the households themselves are primarily to blame for their own misery. The same BoC that is now masquerading as the voice of conservative reason seemed to be on a ciggy break when the market was blazing, and driving out the young couples and low income earners. If the BoC is now taking the plea that they kept the rates low for a whole two years at the behest of the govt, then its not as independent an agency as it pretends to be. Or if it is, then it is not as clever as it pretends to be. Could it not see this coming in the last 24 months? Why were rates kept persistently low and promised to be kept low?
All I’ve learnt from studying the last eight inflation cycles is that the BoC are much better paid than the average Canadian household and are much more clueless than the average Canadian household, and seem only to be able to develop reactionary policies. If they were clever, they could have tried to NOT let inflation spiral out of control in the first place. And its really a pathetic excuse that they needed to see the data before making policy. Any Econ 101 class will provide you data for the last 100 yrs to help you project what will happen the ninth time if you do what you did the last eight times.
Well, “households”, get ready to nurse the BoC’s illegitimate child for a couple of years.
Good job best future
Wow, such a great observation 😱 i am glad it is only the beginning!!!!