Canadians Household Net Worth Increases 0.2%
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Stats Canada’s Q2 2024 report revealed the latest insights into how households fared in the year’s second quarter. The report highlights that the average net worth per household remained steady at just over $1 million in Q2.
Residential real estate accounted for almost 43% of total household assets in Q2. However, household residential real estate values declined 0.1% in Q2. Sales activity in the second quarter decreased 4.7% year-over-year, and the value of residential real estate fell 0.3%.
Key Takeaways
- Household net worth increased by 0.2% in Q2, driven by financial asset appreciation.
- Households that own a home account for over 90% of net worth.
- Mortgage debts account for nearly three-quarters of a household’s outstanding debts.
We’re curious…
The Power of Home Equity Highlighted
Residential real estate accounted for almost 43% of total household assets in Q2, making it a pillar of household wealth. However, the housing market recorded its weakest second quarter of activity in four years. The value of residential real estate fell 0.1% in Q2 and 0.3% year-over-year.
In Q4 of 2023, households that own a home held over 90% of net worth. This emphasizes the long-term benefits of homeownership as a wealth-building strategy.
Housing Supply a Continuous Problem
There remains an imbalance between demand and supply, which puts pressure on housing prices, making it increasingly more difficult for individuals and families to enter the housing market and afford a home. The housing supply shortage has significant implications for first-time homebuyers (FTHB) and lower-income households. Compared to Q2 2023, the number of homes for resale fell by 2.3%.
Concerns have been raised about the future housing supply and its potential impact on affordability. The value of residential real estate may continue to rise despite higher interest rates.
Canada’s mortgage rates are straining homebuyers’ borrowing capacity, with the mortgage stress test adding to the challenges buyers face. These same concerns are driving many Canadians to enter the housing market now to avoid even higher rates in the future as our housing supply dwindles.
Mortgages Squeeze Household Budgets
Mortgage costs have been on the rise in Canada, putting financial pressure on household budgets. At the end of Q2, the household debt service ratio, which measures payments on credit market debt as a proportion of household disposable income, increased to 14.97%. Debt payments grew 2.3%, much faster than the 1.8% increase in disposable income.
Mortgage-only debt service ratios currently sit at a record high of 8.18%. Mortgage and non-mortgage debt increased 1.5% to $45.4 billion, marking the most significant increase since Q3 of 2022. As of Q2, households have an average debt level of $176,525, with mortgage debts accounting for nearly 3/4 of this total outstanding debt.
Homebuyers must carefully assess their financial situation and consider the impact of higher interest rates on mortgage affordability. Homeowners need to clearly understand their financial situation and develop a budget that allows them to meet their future mortgage obligations while maintaining overall financial well-being.
Seeking professional advice and exploring different mortgage options can help mitigate the impact of rising mortgage costs on homebuyers. A knowledgeable mortgage expert can help prospective borrowers understand affordability and shop for the lowest rate available.
Although shopping for a low rate may be a priority for most homebuyers, it’s equally valuable to shop for the right mortgage.
What’s the right mortgage? The right mortgage is a borrowing solution that satisfies your current needs and mitigates future risks. Mortgage experts possess industry knowledge to highlight the features and benefits that may be most valuable for your financial situation.
For example:
- If you solely choose a mortgage based on its low rate without considering the impact of excessive penalties of certain low-rate mortgages, you could be left with a hefty penalty if you or your family need to relocate for work. By honestly discussing your situation with a mortgage expert, you could avoid considering solutions that don’t come with flexible options, such as portability or lower discharge penalty calculations.
Frequently Asked Questions
Welcome to our Frequently-Asked Questions (FAQ) section, where we answer the most popular questions designed and crafted by our in-house mortgage experts to help you make informed mortgage financing decisions.
How can households manage their mortgage costs amidst high interest rates?
Households can consider refinancing their mortgage to extend their amortization, make extra payments to reduce the principal faster and shop for the best mortgage rates and terms to manage mortgage costs. It is advisable to consult with a mortgage expert to determine the best course of action based on individual circumstances.
Note: subprime and private mortgages offer longer amortizations, but they are typically suitable for borrowers looking for short-term solutions with an exit strategy. It’s important to be wary of mortgage brokers who jump to these solutions before explaining why you can’t qualify on the prime lending side.
What can be done to address the housing supply shortage?
Addressing the housing supply shortage requires a multi-faceted approach. Policymakers can implement measures to incentivize the construction of new housing units, such as offering tax incentives, removing municipal policy roadblocks against increased housing density, or streamlining the regulatory process.
Additionally, investing in affordable housing initiatives and encouraging the development of rental properties can alleviate the strain on the housing market. Collaboration between government, industry stakeholders, and communities will be crucial to finding sustainable solutions to Canada’s housing supply issues.
What should potential homebuyers consider in a tight housing market?
In a tight housing market, potential homebuyers should be prepared to act quickly and make competitive offers. Before making an offer, it is essential to have a solid understanding of the local real estate market, set a realistic budget, and seek professional advice.
Final Thoughts
The Stats Canada report provides valuable insights into the ongoing challenges in housing supply and the impact of rising mortgage costs on household budgets. Homeownership continues to be a significant wealth-building strategy, with the appreciation of real estate values contributing to the accumulation of home equity.
However, the persistent housing supply shortage poses challenges for potential buyers and affordability concerns for existing homeowners. Rising mortgage costs further strain household budgets, burdening the economy and consumers, emphasizing the need for careful financial planning and shopping for the best rates possible.
Reach out to nesto’s mortgage experts to learn how much mortgage you can afford.
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