While the summer sun may shine, the economic outlook for Canadian households is rather bleak. 

new report from Desjardins Group highlights a few factors that will make it difficult for Canadians to grow their net worth. 

Led by Desjardins Group’s Senior Director of Canadian Economics Randall Bartlett, the report outlined how a climate of record-low interest rates and pandemic-related government financial support programs contributed to the rise in incomes and asset prices during the thick of COVID-19. (Let’s not also forget the fact that some Canadians actually saved more money in the absence of things like travel and concerts). 

While we slowly climb our way out of the economic devastation caused by the pandemic and its seemingly never-ending lockdown measures, things have started to change as these trends begin to reverse, says Desjardins. Tougher times are in store, cautions the financial services company. “With the value of many assets at risk and liabilities increasing for Canadian households, the outlook for wealth looks bleak,” reads the report.

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Asset growth in Canada has mostly been in the form of home prices (the housing market saw a red-hot run at the onset of the pandemic that lasted nearly two years) and stock market gains as of late, which have now been dropping response to higher interest rates. At the same time, the purchasing power of Canadians’ hard-earned dollars is being eroded thanks to climbing inflation. Rising inflation has resulted in a series of interest rate hikes from the Bank of Canada that ultimately make it more difficult for first-time homebuyers to purchase a home. 

There are, however, some silver linings (well, depending how you look at it). While Desjardins predicts the growth in disposable incomes to moderate from the uncharacteristically high levels seen during the pandemic, it will remain strong due to a healthy labour market and higher wages. 

“We expect income growth to remain robust in the face of rising interest rates, buoying consumption,” reads the report. “At the same time, the savings rate should gradually trend lower while still remaining elevated relative to pre-pandemic levels. But net wealth is likely to be a bigger concern for most households. Because liabilities tend to be stickier, falling asset prices erode net wealth.”

This dynamic is projected to persist through 2022 if home and other asset prices continue to decline, according to Desjardins. Delinquencies are also projected to rise. However, most Canadian households should weather this correction. With the Bank of Canada likely to begin cutting interest rates before the end of 2023, asset prices are ultimately expected to stabilize -- eventually.


So, are we heading for a recession in the meantime? Well, if the Bank of Canada hikes its rates by 0.75% next week during its anticipated July 13 announcement, they will reach levels that haven’t been seen since 2007. 

READ: Recession Likely as Bank of Canada Continues Rapid Rate Hikes

“Even after the recent drop, risks to equity markets remain tilted to the downside,” reads the report. “With the economy slowing down and the possibility of a recession increasing, corporate earnings could take a hit.” Furthermore, it cautioned that there could more downside for stocks, even if the economy doesn’t tank, because stocks are still relatively expensive.

As mentioned, Desjardins predicts that Canada’s central bank will have to roll back some of these rate hikes before the end of 2023, inspiring a little more balance.  

“By the end of this unusual economic and financial cycle, the massive wealth accumulated by Canadian households will most likely have shrunk, at least in real terms,” reads the report’s conclusion. “The extent of this reduction, however, remains highly uncertain and will depend on how smoothly the Bank of Canada navigates a soft landing of the economy.”

When it comes to home prices, Desjardins expects housing prices to drop by about 15% by the end of 2023. The largest drops are expected in the Maritime provinces, Ontario, British Columbia, and Quebec. But that doesn’t mean first-time buyers are in for a break; prices won’t drop below their pre-pandemic levels anywhere in the country.