Household wealth drops for first time since financial crisis

Canadian household wealth dropped in 2018, the first annual decline since the financial crisis battered equity markets and sent real estate prices plunging nearly a decade ago.

The average household net worth fell 1.1 per cent, to $678,792, last year compared with 2017 because of the drop in the stock market, rising debt levels and higher interest rates, according to a new study by Environics Analytics.

Every province and territory showed a decline in household wealth, with Alberta suffering the sharpest losses, followed by Saskatchewan. Alberta household wealth shrunk by 4.2 per cent to $700,171 and Saskatchewan fell 2.9 per cent to $563,490.

Household wealth, or net worth, is the measure of real estate, investments and other assets minus debt, including mortgages, lines of credit, credit-card debt and car loans.

After the global financial crisis and Great Recession in 2009, Canadians grew wealthier thanks to rising real estate prices, low interest rates and a prolonged bull market in equities. In 2017, household net worth increased 8.5 per cent from the year before.

But that started to turn in 2018, as stricter mortgage rules came into effect and the Bank of Canada raised interest rates three times, to 1.75 per cent from 1 per cent. That contributed to a slowdown in property sales and dampened real estate prices. In addition, last year’s losses in equity markets, including the 11.6-per-cent drop in the Toronto Stock Exchange’s S&P/TSX Composite Index, contributed to the dip in investments.

Stock portfolios sank 14.5 per cent to $64,989. Investment portfolios fell 7.3 per cent to $181,231.

That underpinned the 0.5-per-cent drop in household assets to $825,484. Meanwhile, the average household debt rose 2.3 per cent to $146,693.

The Environics findings were derived from a variety of sources including the Bank of Canada, consumer credit agency Equifax and Statistics Canada. It differs from Statscan’s reports by showing net worth by province and census metropolitan area.

Although British Columbia eased by 1.2 per cent, the province still had the highest average household wealth of $943,742 because of its high real estate prices. Among the provinces, New Brunswick had the lowest average net worth at $361,352. The decline in Ontario was so small the average net worth per household was relatively unchanged at $794,916.

Within the provinces, the data show the cities of Toronto and Montreal outperformed their surrounding suburbs. Within Toronto city limits, household net worth climbed by $6,453 or 0.7 per cent. Meanwhile, household wealth in the surrounding suburbs declined by $6,058 or 0.6 per cent.

Likewise in the Montreal census metropolitan area, average household wealth in the city declined by 0.3 per cent and the suburban region dropped by 1.1 per cent.

That was not the case in Vancouver, where the average net worth declined by 2.9 per cent in the city’s core versus a 0.5-per-cent drop in the surrounding areas.

Although real estate prices have started to pick up in the Toronto area and the TSX has recovered to a record high, Environics said it was too early to predict whether Canadians’ net worth would rebound.

“The real estate market has been quite neutral so far this year; however, the stock market has been quite volatile this year. Honestly, I can’t put money on whether we are going to see growth or decline this year,” said Peter Miron, a lead researcher with Environics and author of the study.

Mr. Miron said the data suggest that Canadian households were more financially prudent given the increase in household debt was not as steep as the previous period.

“There is a bit of an angst about what the employment market will look like in the next year,” he said.

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