In the second quarter of 2024, Canadian households saw a modest increase in their net worth, despite the pressures of a cooling housing market and fluctuating financial assets. Household net worth grew by $42.4 billion (+0.2%), reaching a total of $17 trillion, according to recent figures from Statistics Canada. The growth reflects an overall resilience in the nation’s financial landscape, though marked by notable disparities and economic shifts.
The primary driver of the increase in household wealth came from financial assets, which climbed by 0.9% (+$94 billion) to a record $10.1 trillion. Despite weaker domestic equity markets—marked by a subdued 3.9% rise in the S&P 500 Index and a 1.3% drop in the S&P/TSX Composite Index—financial assets continued to expand for the third consecutive quarter.
Conversely, the housing market, which has long been a pillar of Canadian household wealth, showed signs of softening. The value of residential real estate, a substantial portion of household assets, edged down by 0.1% (-$12.1 billion). The decrease follows a trend of declining housing values in three of the past four quarters, underscoring a cooling trend in the real estate sector. This dip is attributed to weaker sales activity, which saw a 4.7% decline compared to the same period in 2023. Both the price (-2.4%) and the number of resale transactions (-2.3%) fell, contributing to a year-over-year drop in the value of residential real estate by 0.3%.
While the national household net worth ticked higher, the distribution of wealth remains uneven. The wealthiest 20% of Canadian households held over two-thirds (67.6%) of total household wealth, averaging $3.4 million in assets. In stark contrast, the bottom 40% of households held just 2.8% of the wealth, with an average net worth of $70,356.
One positive trend for households was the increase in the savings rate, which rose to 7.2% in the second quarter. This increase was driven by higher disposable incomes outpacing the rise in consumption, allowing Canadians to set aside more of their earnings. Households saved an additional $25.9 billion during the quarter, likely bolstering their holdings of currency and deposits.
Household borrowing eased slightly in the second quarter, with total credit market borrowing reaching $25.1 billion, down from $25.3 billion in the previous quarter. This marks the fourth consecutive quarter of elevated demand for funds, albeit at a slower pace. Consumer credit borrowing declined sharply from $7.8 billion in the first quarter to $4.0 billion, while mortgage borrowing increased to $18.3 billion from $17.3 billion in the previous quarter.
Despite this deceleration, household credit market debt continued to rise, reaching $2.97 trillion, an increase of 0.8%. Mortgage debt accounted for nearly three-quarters of this figure, with total mortgage liabilities standing at $2.2 trillion. On average, Canadian households carried $176,525 in debt, reflecting the ongoing challenges of managing debt in an environment of high housing costs and rising interest rates.
The burden of servicing this debt also increased. The household debt service ratio, which measures the proportion of disposable income used to pay down debt, rose to 14.97%, up from 14.89% in the first quarter. This was driven by a 2.3% increase in debt payments, outpacing the 1.8% growth in disposable income. Mortgage payments alone accounted for a record 8.18% of disposable income, highlighting the growing strain on households as they contend with high borrowing costs.
On the public side, federal government borrowing saw a sharp decline in the second quarter, dropping to $8.9 billion from $47.9 billion in the previous quarter. The significant borrowing in the first quarter was linked to a one-time payment as part of the First Nations Child and Family Services settlement. In contrast, the second quarter saw net redemptions of federal bonds and stable issuance of treasury bills.
In the private sector, non-financial corporations’ demand for funds rebounded to $20.1 billion, driven by increased bond issuance (+$18.7 billion) and mortgage borrowing (+$7.9 billion). This came after a sharp contraction in non-mortgage loan liabilities in the previous quarter, partly due to repayments of the Canada Emergency Business Account (CEBA) loans. Listed share redemptions continued for the tenth consecutive quarter as foreign direct investment in Canada surged, leading to several domestically listed companies being delisted after acquisitions by non-residents.
At a broader level, Canada’s national net worth grew by 1.6% to $19.4 trillion in the second quarter, buoyed by gains in both national wealth and the country’s international investment position. The value of non-financial assets, including natural resources such as energy, minerals, and timber, saw significant growth (+9.8%). This increase in resource value contributed to a rise in national wealth, which totaled $17.3 trillion by the end of the quarter.
The second quarter of 2024 paints a mixed picture of the Canadian economy. While household net worth continues to rise, driven largely by financial assets and increased savings, the housing market remains a source of concern. Borrowing patterns also suggest households are feeling the pinch of high mortgage debt and rising interest payments, which could challenge future economic growth if disposable income fails to keep pace with debt obligations.
With the Bank of Canada continuing its policy of quantitative tightening and housing prices showing signs of stagnation, the outlook for the latter half of 2024 remains uncertain. While households are navigating these challenges with cautious optimism, the question remains: how long can they maintain this delicate balance between growing assets and rising liabilities?