Canada

The Canadian Property Bubble Inflation Is Now 75% of Net-Worth Growth

The Canadian property bubble is consuming the whole economy — and concentrating wealth creation. Household net-worth soared to a new high in the first quarter of 2021, according to Statistics Canada (Stat Can) data. Real estate represented over three-quarters of the gains in wealth, which is much higher than normal. Fanning the flames of the hot market means even more of the country now has its wealth concentrated in non-productive assets. 

Canadian Households See Their Net-Worth Rise To $13.7 Trillion

Candian household net-worth has been soaring throughout the pandemic. The value reached $13.70 trillion in the first quarter, up 5.99% from the previous quarter. Over the past year, it’s increased by 21.50%, representing about $773.77 billion in gains. Stat Can only provides data for this series going back to 1990, but this is by far the largest annual rate of growth since then. It most likely goes back much further, since wealth growth by more than a fifth is highly unusual. Especially during a recession. 

Canadian Household Net-Worth Annual Rate of Growth

The rate of annual growth for household net-worth in Canada.
Source: Stat Can; Better Dwelling.

Households Hold Over $7.1 Trillion of Wealth In Real Estate

The majority of those gains are due to real estate — the combination of land and residential structures. This segment represented $7.10 trillion of assets, or just over half of household net-worth. It increased by 9.16% from the previous quarter, and is up 20.87% from the year before. The combination of categories works out to $595 billion in gains from just the previous quarter.   

Canadian Household Net-Worth

The dollar value of Canadian household net-worth, and its sub-component of real estate (land and residential structures).
Source: Stat Can; Better Dwelling.

Household Wealth Creation Is Increasingly Concentrated In Real Estate

Real estate represents an unusually large share of gains for household wealth. They represented 76.96% of net-worth gains in the first quarter of 2021. It’s not always like this either, it’s the first time it represented such a large portion since 2018. Between 2018 and 2020, it represented a share of less than 40% of gains. The median quarterly share since 1990 is 34%, so the past three quarters above 40% is unusual. Over three-quarters in the first-quarter shows how exuberant the environment became.

We had some idea household net-worth in the first quarter was going to see a big boost from real estate. Home prices had been growing by multiples of household incomes, after all. Households are increasingly generating wealth through non-productive assets — as opposed to businesses.

Non-productive assets have a very different goal when stimulating the economy. Most of it is through a wealth effect, which is when people spend because they feel rich. Not necessarily because they have any more liquid capital than they did before. They feel if things went bad, they can tap their assets.

Whether this offsets the amount of spending lost by young adults is the question. In order for the next few generations to purchase a home, they need to save a lot more. This is going to mean a pullback in what circulates. If homeowners don’t make up the lost spending through a wealth effect, the wealth concentration gains are going to increasingly be a drag on the economy.

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21 Comments

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  • Oh Canada Our and Land of housing bubble 6 months ago

    Paper Wealth, Wealth Effect, Drinking the Kool-Aid home prices only go up.
    I can’t image how this is not going to be an epic crash. Maybe if your thinking of moving to Canada don’t come you will be a slave to debt. Plus the job market has not rebounded and you will struggle financially. Not worth it. When city’s are short of funds property taxes will rise and don’t forget inflation is here.
    ~ Oh Canada our and land of a epic housing bubble

  • D 6 months ago

    $14 trillion/ 10.5 million Canadian households = $1.3 million or $1.1 million usd per household net worth. We should be celebrating because at least 35-40% of Canadians are living in a millionaire household and thus bonafide millionaires 🙂

    • Paul 6 months ago

      Paper handed only. Don’t forget it’s shelter.

    • Alex 6 months ago

      Now go try and liquidate a portion of that wealth without having to sell the entire property.

      Real estate valuations have outpaced income by such large margins that most Canadian home owners cannot access the majority of equity in their homes – at least not through A-lenders and even a large portion of tertiary lenders.

      There is paper wealth and then there is illiquid, unproductive paper wealth, which is making up a larger and larger proportion of capital in this country.

      Warning: Danger ahead.

      • Canaduh 6 months ago

        Can you expand on this. Interested in anecdotal illiquidity examples. For the record, I agree.

        • Paul 6 months ago

          On paper it looks like wealth is increasing but the gains are trapped in a non-productive asset (shelter) which can’t be easily tapped without creating debt in the process. The anecdote is a majority of homeowners at this point. The fact that the capital is trapped means it won’t be spent on the economy or to help growth anywhere other than debt.

  • V 6 months ago

    Being a millionaire on paper isn’t a bonafide millionaire. When you have 1 million liquid that you can send to someone or spend freely equates to a bonafide millionaire. Remember you still need to pay realtors when you you sell and if it’s your personal house you will need another. If you borrow from your equity you’re paying interest. The perception that people are millionaires is wrong. If after you actually sell and pay off all your debt and if you’re left with 1 million to spend then yes, congratulations you’re a millionaire!

    • D 6 months ago

      Net worth = assets minus liabilities

      I’m not sure if the trillions in this figure include home equity.

  • Smug Canadians 6 months ago

    We’re so screwed!!!! I mean it!!! I’ve been here before.

  • Smug Canadians 6 months ago

    The only thing that makes me sleep at night now is that I’ve heavily invested in non-RE related investments.!!!!!

  • Smug Canadians 6 months ago

    You poor souls that are buying RE now are really screwed! We are now at peak bubble, or freak bubble. This should never have happened!!!

    • Sam 6 months ago

      When is the pimple going to burst? Certainly not as long as the government injects collagen into the skin, allowing it to become stretchy enough to hold the ever increasing puss…..

      • Average Man 6 months ago

        This metaphor isn’t inaccurate but MY GOD is it gross.

  • SK 6 months ago

    I have made millions in RE while reading jealous comments like that last 10 years, hah

    • Pete 6 months ago

      There are so many heathy and productive ways to make money besides RE speculation!

      You did not invent anything; no legacy for you or your family.

      Nothing to brag about SK!

    • D 6 months ago

      And what was your cut of those millions? 3%?

      • AC 6 months ago

        Don’t forget to knock off 0.5% for paying off.. I mean incentive pay for the underwriter.

  • Matteo 6 months ago

    Does this considers only the equity home owners have already acquired on their houses. Or does it include the whole value of the 25 years mortgage they took to pay for it? Because in the latter case it’s a 25 years projected value.
    Considering the perversion of the Canadian system of having to refinance the mortgage every 5 years, unless salaries grow with inflation, people will have to work just to pay the mortgage. And then who is going to spend on the real economy?

    • Mica 6 months ago

      Not sure what you’re trying to ask, but net-worth is assets minus liabilities. A mortgage isn’t a household’s asset, it’s its liability. It’s a lender’s asset though. That kind of what you were looking for?

  • Smug Canadians 6 months ago

    SK;
    Jealous of what?? I own property; and yeah, I’ve made good money at it. But, I also know, and have lived through the down side!!! It’s coming soon btw. I’m just not stupid enough to think things are going to keep going up.

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