Canadian average net worth growing but interest rates a challenge

‘Canadians paid $9.0 billion more in interest charges in 2017 than they did the prior year,’ says Environics Analytics report

Mario Toneguzzi: Canadian average net worth growing but interest rates a challengeAverage household net worth in Canada continues to grow but higher interest rates are putting increased pressure on discretionary spending, according to a new report released Monday by Environics Analytics.

“For many Canadians the rising interest rates over the past year have already cost them the equivalent of an extra mortgage payment,” said Peter Miron, Environics Analytics’ senior vice-president of research and development and the architect of WealthScapes 2018. “As interest rates have steadily increased since late 2017 we expect the strain on household finances will be greater this year.”

The report found that the average Canadian net worth rose by 8.5 per cent to $807,872 at the end of 2017, but much of that wealth was tied up in illiquid assets like real estate. Over the same period, household debt levels have been rising faster than incomes, which could chip away at discretionary spending.

“Even though household debt climbed by a relatively modest 4.5 per cent in 2017, the average year-end interest-expense-to-income ratio rose 40 basis points to 6.4 per cent, which is the first increase in a decade,” said the report.

“Increasing debt levels coupled with rising interest rates mean the average Canadian household spent $544 more on interest charges in 2017. The effects of rising interest rates were particularly acute in Vancouver, where households on average incurred an additional $1,152 in interest charges. Overall, Canadians paid $9.0 billion more in interest charges in 2017 than they did the prior year.”

The report said the average household income in Alberta was $119,806, with average net worth of $853,129 and average debt of $176.536.

One in five neighbourhoods in Canada have an average net worth of at least $1 million. The highest concentration of these ‘millionaire neighbourhoods’ are found in British Columbia, primarily due to very high real estate values, said the report.

“Almost 37 per cent of households in B.C. live in a seven-figure net worth neighbourhood. In Ontario, more than a quarter (26.2 per cent) of neighbourhoods meet that definition, followed by Alberta at 18.5 per cent,” said the report.

“While the majority of the provinces have a greater number of lower-net worth households than very wealthy ones, Ontario, Alberta and British Columbia bucked this trend. In each of these provinces, there were higher numbers of wealthier neighbourhoods than middle- and low-income neighbourhoods. More than 50 per cent of neighbourhoods in these provinces reside in the top two wealth tiers, largely as a result of real estate values.”

It said Alberta experienced decent growth in liquid assets (up 7.5 per cent), but household net worth growth was limited to 5.8 per cent due to its relatively tepid real estate market (up 3.3 per cent).

“The Prairies generally lagged behind the other provinces in terms of net worth growth in 2017; however, there were some pockets of stronger growth. The best performing CMAs in the Prairies were Strathmore (10.7 per cent), Lethbridge (8.8 per cent) and Steinbach, Man. (7.4 per cent). In Strathmore, household debt fell by 16.4 per cent in 2017. Unlike many other cities in the country, the root of these cities’ growth is not traced back to the real estate market. Rather, the households of all three cities were aggressively saving over 2017 and their liquid asset balances grew faster than the national average (6.6 per cent). The average liquid asset balances per household of Strathmore increased by 8.2 per cent, Lethbridge increased by 15.5 per cent and Steinbach increased by 15.6 per cent.”

Mario Toneguzzi is a veteran Calgary-based journalist who worked for 35 years for the Calgary Herald, including 12 years as a senior business writer.

Canadian average net worth growing but interest rates a challenge

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