CANADIAN HOUSEHOLD NET WORTH FALLS $331 BILLION, FIRST ANNUAL LOSS SINCE 2009

Posted in Finance

The market giveth, the market taketh—especially during an interest rate-driven economic cycle. Statistics Canada (Stat Can) data shows household net worth made a sharp drop in Q3 2022. The quarterly decline was so sharp, it wiped out a year of headline-making growth. It was the first time annual growth turned negative since the Great Recession.

Canadians experienced a sharp decline in their net worth last quarter. Household net worth climbed to $15.1 trillion in Q3 2022, down 2.1% ($331.7 billion) from the previous quarter. It brought the total 1.2% ($182.3 billion) lower than the same month last year, making it the first negative annual growth since 2009. Also worth emphasizing is the quarter’s drop was big enough to wipe out all annual growth over the past year. Ouch.

Canadian Household Net Worth

The aggregate net worth (assets less liabilities) of Canadian households in trillions of dollars.

Source: Statistics Canada; Better Dwelling.

Falling Asset Prices Are The Biggest Contributor To Net Worth Drop

Net worth erosion was primarily due to falling asset values in almost all classes. Households held $17.9 trillion in assets in Q3, down 1.6% ($290.5 billion) from the previous quarter. The value was virtually flat compared to last year, meaning those big gains in Q1 2022 are now gone. That shouldn’t be too surprising, considering everyone is discussing falling asset values, everywhere.

Canadian Household Saw Their Net Worth Fall For The First Time Since 2009

The annual growth of household net worth in percentage points.

Source: Statistics Canada; Better Dwelling.

Households Have Accumulated A Massive Debt Pile

A household’s net worth is its assets less liabilities, and that huge debt pile is a liability. Canadian households owe $2.84 trillion in Q3 2022, up 1.5% ($41.2 billion) from the previous quarter. The debt pile is 7.5% ($197.4 billion) higher than the same quarter last year. It’s a huge amount of debt, especially in contrast to the income households in the country make.

Falling households’ net worth presents a few problems, including liquidity issues. Few people are willing to purchase assets while they’re falling in price. However, the biggest issue has to do with how people feel about falling asset prices.

When people feel wealthy, they consume extra because times are good. They aren’t worried about losing their job, or where their next paycheck is coming from. This is called a wealth effect—and a positive wealth effect is desired.

A negative wealth effect occurs when net worths decline. People tighten their belts, and reduce consumption, resulting in slower economic growth. The low rate-driven positive wealth effect is about to balance with a negative effect due to high inflation and rising rates.

Story by: Better Dwelling

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