Canada

Canadian Wealth Soars Relative To Debt, But Bank Exec Warned This Might Be A Mirage

Canadians must be hoping for a recession every year, since they’ve never made more money. A National Bank of Canada (NBC) analysis shows household wealth surged in Q2 2021. Their wealth actually surged so fast, the ratio of debt hasn’t looked smaller in almost 2 decades. The bank expects this to fund a significant spending boom, as people feel wealthier. There’s just one problem — a bank exec warned housing wealth might be “exaggerated.”

Households Have Seen Assets Rise 23% Since The Pandemic Started

Statistics Canada (Stat Can) data shows household asset values soared this year. The value of assets increased 3.6% in Q2 2021, the fifth consecutive quarter to rise. NBC found households have now gained 23% from the Q1 2020 low, after the pandemic hit. “This 4 standard deviations jump is by far the quickest turnaround since data recording began,” said Matthieu Arseneau, NBC’s chief deputy chief economist.  

Canadian Debt To Assets Falls To Nearly Two-Decade Low

The unprecedented (drink!) increase in asset values has the relative size of debt looking smaller. The debt to asset ratio dropped below 16% last quarter, the lowest it’s been since the early 2000s. NBC sees this producing a “wealth effect” — when people feel rich, they spend more. Often taking out more debt to finance it, since they have little relative to the size of their assets. 

BMO’s Chief Risk Officer Warned Home Equity Might Be “Exaggerated” Earlier This Year

The rise in asset values might sound encouraging, but one of the Big Six banks dropped a pin for that bubble. In May, BMO Chief Risk Officer Patrick Cronin told investors about the bank’s new risk procedures. While doing so, he said “The elevated home prices may exaggerate LTVs and so, we’re taking our risk management practices on housing dynamic…” 

That statement might not mean much to the average person, but he’s saying home equity might be unreliable. The housing boom created significant equity with little actual financial contribution from owners. They aren’t sure how secure those gains are, and definitely aren’t willing to bet on them. Consequently, they need to adopt new risk procedures due to this “exaggerated” equity. 

Ultimately, that won’t stop the wealth effect NBC’s economists are talking about. Most people think they’ve hit the jackpot, and their equity is here to stay. If you live in a million-dollar home, why not get a new expensive truck to go in the driveway? Maybe an ATV, or a Ski-doo for the cottage? You’re a part of the rich now, right? Just like the other 60-something percent of households that are homeowners, apparently.

If home equity does prove to be exaggerated, these households are in a worse situation. Not only was their equity fleeting, but they spent a bunch of money because they thought they were rich.

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11 Comments

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  • Jason Chau 1 month ago

    Bank’s are saying, “you’re richer than you think” while their chief risk officers are saying, “we think they’re poorer than they think.”

    • JM 1 month ago

      Yup, why I’ll never put my money with scammy Scotiabank ™. …
      Such poor, $hitty advice for everyone that they trumpet as their motto…

      Who are we kidding, most banks are a pyramid-scam, but with a motto like that, I think they’re the worst/most predatory….

    • JM 1 month ago

      Yup, why I will never put my money with Scotiabank..
      Their motto is pure, irresponsible — the worst of pop-culture folly. Brutal.

  • D 1 month ago

    New furniture is over priced crappola. They have $7k Asian made furniture at leons and it’s not even leather although they are recliners. Genuine leather furniture with recliners are $20k. Basic leather furniture with no special features are $10k. How are we wealthy when things have soared in price?

    • JM 1 month ago

      Yup, those places sell garbage… There was a recent duty-increase on Chinese/vietnamese crap-furniture as they are dumping it in North America. Not sure if it was just for the USA or here as well, but I know it’s affected prices here.

      Better to go to a local furniture store and buy locally made stuff, it’ll undoubtedly be cheaper than these prices, and better made too. Sad a duty had to do it, but they had been lobbying against the asian dumping of garbage (MDF) for some time… It will cost you more up-front but will probably last 3x as long.

      • D 1 month ago

        The Canada made stuff is also expensive for what it’s worth. Really the cheapest stuff (asian) I found were $2k for a set and it looked like total crap and would probably last for less than 3 years. Stuff like that 10 years ago would be $700-$800 a set.

  • Flipg 1 month ago

    Trudeau will bring 5 million new immigrants here to fix all our problems. Singh will allow new immigrants to disinter Great Gramma and Great Grampa from the Old Country Cemetary and collect OAS and Guaranteed Income Suppliment with free meds and Dental.

    If these clowns weren’t bribing us no one would vote for them.

    • JM 1 month ago

      Yup, two of the worst things/people for the country. The Liberals could be better, but not under the clown-prince/trustafarian they made their candidate in 2015.

  • Ksnn 1 month ago

    Well, the logical thing to do is transfer some of that wealth. Maybe a tax on people who own multiple residential properties will do it.

  • Joe Blow 1 month ago

    I can think as far back as 2015 when I first started to frequent into this website and I used to be a huge bear on the housing market back then and fast forward into today and as much as I see irrational exuberance, and a lot of points made on the housing market that will soon fall to me sounds more and more like a joke.

    we have a tornado warning today and If it was to cause severe carnage and rip down all the poorly built condos across downtown, we still will see 15-25% increases year after year. Central banks and government policy is what keeps everything propped up, and nothing will come down until they decide they want it to go down. Until then I guess I hope you are all in the market

  • Tim 1 month ago

    Isn’t this exactly what happened in 2006? Everyone thought they were rich, and bough a bunch of new stuff like ATVs and Quads, then had it all repod? I remember getting a nice Mercedes from repo in 2010 for half the cost in Canada . Greatest Recession ever.

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