After yet another aggressive rate hike just last week, Canadian households are quite clearly feeling the squeeze.

Data released today by Statistics Canada (StatCan) indicated that while Canada’s national net worth rose slightly by 0.2% between Q1 and Q2 of 2022, collective household net worth, household savings, and household financial assets are all on the decline -- and home values are to blame.

In Q2, household sector net worth decreased by $990.1B or 6.1%. StatCan notes that this record-breaking decline can be chalked up to households facing “challenging equity, bond, and housing markets.” This is in contrast to trends of the past few years. Prior to this quarter’s downturn, Canadian households were seeing strong wealth growth beginning in early 2020.

The household savings rate fell to 6.2%, down from 9.5% in Q1. While seasonally adjusted household compensation grew by 2.0% in Q2, that was dampened by seasonally adjusted household consumption, which rose by 4.3% in Q2 due to inflated prices of goods and services.

Household financial assets also dropped by 5.7% in Q2. StatCan attributes this to “depreciating values of debt and equity securities.” The report also noted that both bond and equity markets declined substantially in the second quarter, calling this an uncommon occurrence given that higher interest rates typically translate into higher bond yields.

At the same time, household borrowing is on the up, with Canadian households taking on significant debt in these uncertain times. In Q2, households added $56.3B in debt, now owing $1.82 for every dollar of disposable income. This is a near-record. StatCan also notes that given the current interest rate environment, more Canadians are opting for variable rate mortgages over fixed.

Additionally, residential real estate values are continuing to fall as borrowing costs continue to rise. In Q2, residential home values dropped by 5% on a quarterly basis. This decline mitigated the 3.9% that was gained in Q1. With that said, the dollar valuation exceeded $2.3T or 41.1% more than the valuation recorded at the end of 2019.

Meanwhile, from Q1 to Q2, the value of residential land saw an 8.7% decrease, the value of residential structures saw a 1% increase, and the average resale price declined by 10.5%. There were also 24.1% fewer home sales in Q2 compared to the same time last year.

These are all indications that Canadian households, collectively, are facing a “trifecta of market challenges,” says StatCan.

Personal Finance