Canadians’ income and average net worth have increased, but the spectre of debt is growing stronger
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A new report from Environics Analytics shows that the danger of debt is becoming more apparent for Canadians as interest rates continue their upward movement.
Based on an analysis of its WealthScapes 2018 database, the firm found that the average Canadian net worth, including employer-based pension plans, grew 8.5% to $807,872 at the end of 2017. However, only $293,332 of that amount was in liquid assets; the majority was tied up in illiquid assets, with real estate accounting for $144,671 on average.
In terms of net-worth growth, the top three provinces named in the report were British Columbia (11.7%), Ontario (9.6%), and Quebec. Though growth in Ontario was somewhat even, it was still led by real-estate appreciation (11.4%) followed by gains in liquid assets (6.3%). Quebec stood out because of the leading growth role played by liquid assets (up 8.3% compared to 5.4% in real estate) — which, remarkably, resulted more from higher household savings rates than stock-market appreciation — as well as its modest 2.9% increase in average household debt.
“B.C.’s growth was almost exclusively driven by real estate (up 16.1 percent), but … [h]ousehold debt in the province rose by 7.1 percent, largely due to a 7.8 percent increase in mortgage debt coupled with a greater number of households in the province drawing down their savings,” the report said.
A 4.5% increase in debt levels took average household debt levels to $144,671, with $103,546 in mortgages and the rest in consumer debt. While the growth in household debt was relatively modest, the average year-end interest-expense-to-income ratio saw its first increase in a decade, climbing 40 basis points to 6.4%. The results are in line with recent findings from the Canadian Payroll Association that working Canadians are facing increased debt levels.
The combination of rising interest rates and increasing debt levels resulted in an additional $544 in interest charges for the average Canadian household, which added up to a $9-billion country-wide increase in 2017 compared to the previous year. Vancouver residents felt the worst shock; while the city topped the list of metropolitan areas with the highest net worth per household ($1,324,850), it also saw a $1,152 jump in interest charges for each household on average.
“For many Canadians the rising interest rates over the past year have already cost them the equivalent of an extra mortgage payment,” said Peter Miron, senior vice president for Research and Development at Environics Analytics and the architect of WealthScapes 2018. “As interest rates have steadily increased since late 2017 we expect the strain on household finances will be greater this year.”
More recent figures from Statistics Canada suggest a more optimistic picture, showing both an increase in household net worth and a year-on-year decline in household debt.
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