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A strong housing market is making Canadians wealthier, on paper, as the value of their homes outstrips a rising amount of debt.
Household debt across the country grew by 4.1 per cent last year to an average of $133,170 while average household net worth increased slightly more, rising by 4.3 per cent to $680,098, according to the latest WealthScapes analysis by Environics Analytics. That leaves many households in decent financial shape despite challenging market conditions.
Households in British Columbia are the richest, according to the study, with net worth growing by 6.3 per cent to $883,049. Growth in B.C. was fuelled by a scorching hot real estate market centred on Greater Vancouver. In fact, Vancouver became Canada's first "city of millionaires" with the average household net worth hitting $1,036,202, a 7.1-per-cent increase from 2014.
Real estate holdings – which include appreciation on existing homes as well as new investments – increased by 11.9 per cent in Vancouver, well above the national average growth rate of 4.6 per cent.
Home prices have run up so far in B.C.'s Lower Mainland that the provincial government recently imposed a 15-per-cent tax on foreign buyers of homes in some municipalities, in a bid to cool the market and resist a tide of capital from China and elsewhere.
While many Canadians became wealthier, those in oil-dependent provinces struggled and saw household net worth rise by weak levels – 1.1 per cent in Saskatchewan and 1.8 per cent in Newfoundland and Labrador – or even fall. In the case of Alberta, household net worth declined by 0.7 per cent.
"Canada is really a tale of two economies at the moment," said Peter Miron, the lead developer of the WealthScapes analysis. "We saw the oil-based provinces, especially metro centres, really taking a beating relative to the rest of Canada. Those provinces are facing significant headwinds. They might not necessarily be in a recession, but they are definitely struggling."
After British Columbia, Ontario boasts the richest households, with net worth growing by 5.2 per cent to $793,338. Alberta, which was the second-richest province last year, saw household net worth decline to $763,812, dropping to third in the national rankings.
Alberta's decline in net worth can be attributed to a 2-per-cent decline in real estate values, combined with slightly-below-average growth in pensions (4.4 per cent) and liquid assets (1 per cent).
The average worth of liquid assets per household decreased in Vancouver, which Mr. Miron said suggests that some are cashing in their savings to make a down payment on real estate.
"The big worry on our radar at the moment is Vancouver," Mr. Miron said. "It's basically only real estate that's fuelling growth in Vancouver."
Conversely, the increase in Ontario's net worth was spread among liquid assets, pensions and above-average real estate growth. While Toronto saw real estate growth contribute significantly to household net worth increases, households also experienced substantial gains with other assets.
"Despite the very strong performing real estate market, we're also seeing Torontonians collectively [squirrelling] away more money in 2015," said Mr. Miron, pointing to the liquid asset increase of 2.9 per cent.
Mr. Miron said there are no major indicators of volatility, but many questions regarding oil prices, the impact of B.C's foreign buyer tax, and the possibility that the United States will raise interest rates.
Debt levels in 2015 grew at a slightly higher rate – 4.1 per cent – than in previous years, outpacing household income growth, which increased by 3.2 per cent.
However, the rising level of debt can be attributed to rising levels of mortgage debt, which increased by 5.1 per cent to $94,867. With historically low interest rates, Mr. Miron says it's never been more affordable for Canadians to borrow.
"The big risk there is what happens if interest rates do start increasing," he said. "Right across the board, Canadians would feel it. However, it would be concentrated in the areas which are more debt heavy, like for example Vancouver, Toronto and Calgary."
Despite a rocky year on the stock market, Canadian households on average managed to save more, with liquid assets increasing by 3 per cent to $251,559 in 2015. Investments – including bonds and segregated and mutual funds – made up a majority of those assets.
"This time around, we're seeing Canadians being very cautious, particularly in areas related to taking on more debt," Mr. Miron said. "At this point they are not very optimistic, which means they are being prudent, which can be considered both positive and negative."
Employer pension plans were the fastest-growing asset for Canadians on average in 2015.
Pension assets – predominantly within defined-benefit plans, where payouts are determined based on salary and years of service – increased 5.7 per cent nationally to $140,204. Pension assets grew the most in Manitoba – by 8.3 per cent to $142,740 – and in the Atlantic provinces, up 8.3 per cent to $138,804.
Mr. Miron said the increase appears to be tied less to new investments than to the appreciation in pension plan assets.
"With long-term interest rates continuing to decrease and Canadian longevity continually improving, it's really forcing the defined-benefit pension plan values up," Mr. Miron said.
The city that surprised Mr. Miron was Oshawa, Ont., which posted the greatest household net worth gain in Canada, increasing by 9.2 per cent from 2014 to $714,040.
That gain resulted from a combination of real estate, liquid assets and above-average pension growth. Real estate holdings in Oshawa increased by 10.5 per cent, the second-largest increase in the country, while liquid asset growth grew 7.6 per cent, more than double the Canadian average. Pensions grew by 6.2 per cent, above the national average of 5.7 per cent.
"The only thing that's really catching people in Oshawa is that with the very strong real estate growth, we did see significant growth in household debt," Mr. Miron said. Debt per household increased by 7.9 per cent from last year to $161,870.
Wealth changes by neighbourhood
The following maps show the one-year change in average household net worth at the neighbourhood level in the Toronto, Vancouver, Montreal and Calgary areas. (Period measured is to end of 2015 from end of 2014.)
Swipe or tap to see the maps.
Map source: Environics Analytics, WealthScapes 2016. Illustrations by Murat Yükselir