Stock Rally Boosts Canadians' Wealth Despite Housing Slump

Stock Rally Boosts Canadians’ Wealth Despite Housing Slump

Canadians are leveraging the current stock market surge to bolster their financial stability, even as they grapple with hefty debt repayments that consume a significant chunk of their income.

By The Numbers

The latest report from Statistics Canada revealed a 1.8% increase in household net worth, resulting in a $290 billion rise and bringing the total net worth to approximately $16.4 trillion. The 5% surge in financial assets, including stocks and bonds, outpaced the 1.9% decrease in the value of residential real estate. The growth in financial obligations was only 3.4% in 2023, marking the lowest annual growth in household debt since 1990.

Between The Lines

Many Canadians are reaping the benefits of a diverse asset portfolio during a challenging period for personal finances, given the potential risks of rising interest rates and mounting debt payments. However, not all individuals can enjoy these benefits, as the distribution of assets and liabilities is uneven. Approximately 20% of households in Canada hold most of the wealth.

Household Debt

Many households are struggling with debt payments. The household debt service ratio remained steady at 15% in Q4, comparable to levels seen in 2007 and 2019. A typical household allocates 15 cents each after-tax dollar to cover debt expenses.

What’s Next

Many homeowners have yet to feel the full impact of rising interest rates as they haven’t renewed their mortgages since the Bank of Canada began enforcing stricter lending conditions in early 2022. Mortgage interest payments have nearly doubled since the start of 2022, with about 2/3rds of mortgage payments going towards interest in Q4.

The Bottom Line

The debt service ratio is historically high and projected to rise further in the coming months due to delayed mortgage renewals and anticipated slower income growth. However, some relief may be on the horizon as the Bank of Canada is expected to lower its benchmark interest rate, currently at 5%, in June or July. Canada’s household debt to disposable income ratio has decreased for the third consecutive quarter, reaching 178.7%, indicating that after-tax income growth is outpacing debt growth.

Canadians are saving more than in recent years, with the household savings rate of disposable income increasing to 6.2% in the fourth quarter. Exchange-traded (ETF) and money market funds gained significant popularity in the second half of 2022, suggesting consumers prioritize shorter investment periods and lower fee options.

The ongoing equities surge may have contributed to an increase in household wealth at the start of the year. Despite the general increase in wealth, many households are under strain, with an increase in consumer insolvencies indicating that some households may struggle to meet their financial obligations.

One of the best ways to increase wealth is to reduce debts. By lowering your mortgage payment, you could use the additional savings to pay down your debts or mortgage or even set up a pre-authorized contribution (PAC) to your investments.  Ready to find a lower fixed or variable rate for your mortgage? Reach out to nesto’s mortgage experts to find your best mortgage rate.