Canadian families have become wealthier over the past several years, with net worth rising despite the well-documented growth in household debt and a setback from the recession, a new Statistics Canada study shows.
In a report that takes a long view on the state of Canadian finances, the agency finds that the 2012 median net worth among family units — of two or more persons and unattached individuals — has risen 44.5 per cent since 2005 to $243,800 and up almost 80 per cent since 1999.
Those family units have also accumulated more debt, a total of $1.34 trillion in 2012, up from $864.6 billion in 2005. Most of the debt — about $1 trillion — has been used to finance home purchases. All figures are in inflation-adjusted dollars.
The Conservative government said the report shows that Liberal criticism of their policies as not benefiting Canadians generally is wrong.
"That is a very significant increase ... after-tax disposable income has increased by 10 per cent across all income bracket," said Employment Minister Jason Kenney.
But while the overall picture of family finances was positive, the report also pointed to continuing disparities across regions, age groups and types of families.
The biggest single reason for the improvement in finances overall has been due to house prices reaching record levels, notes economist Andrew Jackson of the Broadbent Institute, and those prices are widely projected to moderate or even fall in the next few years.
"The big question is if and when we get a housing price correction, individuals will still be holding the debt and that is a cause for concern," he said.
Real estate prices have risen faster than mortgage debt and other assets, he notes, but if the trend reverses, some Canadian families may discover their wealth rests on "shifting sand."
For those who owned their homes, the median reported value of the residence was $300,000, up 46.6 per cent from 2005 and 83.2 per cent from 1999.
In terms of inequality, the report found that the wealthiest 20 per cent of family units accounted for 67.4 per cent of the total national net worth, although that was slightly lower than the 69.2 per cent the top quintile possessed in 2005.
Meanwhile, the top 40 per cent of families possessed 88.9 per cent of total net worth, leaving the bottom 60 per cent with a mere 11.1 per cent of the pie.
The lowest quintile — the poorest 20 per cent of families — had an overall negative net worth, meaning that as a group they had more debts than assets.
That segment of the population saw its family median net worth drop from about $1,300 in 1999 to $1,100 in 2012. By contrast, the top quintile saw its family median net worth rise from $981,400 in 2005 to $1.38 million in 2012.
Bank of Montreal chief economist Doug Porter said the data, while positive, still shows household debt remains a concern.
"The standout is the tremendous growth in net worth over the 13-year period. It works out to average annual increases of better than five per cent, which is quite impressive," he said.
But that doesn't mean household debt is a non-issue, he added, predicting that the biggest impact on the economy will be to act as a check on consumer spending going forward.
Overall, total family assets in Canada rose to $9.4 trillion in 2012, with the value of families' principle home representing one third of the total assets. Pension assets, including employer plans and private pension plans, made up 30 per cent of the total, while other real estate holdings — rental properties, cottages, timeshares and commercial properties — represent almost 10 per cent.
But the report confirms large disparities in net worth depending on age, the nature of the family unit and regions of the country.
For instance, median net worth was highest for families where the person with the highest income was 55 to 64 years old in 2012. For that group it came in at $533,600, more than double that of the overall population.
And lone parent families had the lowest median net worth — only $37,000.
Regionally, British Columbia reported the highest family median net worth at $344,000, followed by Saskatchewan ($271,400), Alberta ($267,500), and Ontario ($265,700). B.C. families had the biggest improvement since 1999, jumping from $150,700 when the province placed fourth.
At the bottom, family units in Newfoundland and Labrador and Prince Edward Island had a median net worth of $167,900 and $150,300 respectively.
If you divide Canadian families up into fifths in terms of net worth, the lowest quintile had net assets of about 1,300 Canadian dollars ($1,170) in 1999.
In 2012, it was actually below that; the overall worth of the lowest 20% of families declined 15.4% to C$1,100 by 2012, according to the “Survey of Financial Security” from Statistics Canada.
It’s a stark indication Canada is not immune the drift toward economic inequality in evidence in many other economies around the world.
“All in all, [the Statistics Canada report is] further disturbing evidence that economic inequality remains a serious concern,” said a blog posting from the left-leaning Broadbent Institute.
Income inequality is more frequently used as a metric when assessing economic inequality. But net worth, the wealth a family has when its debts are subtracted from its assets, also provides insight.
It’s important to note that, unlike the bottom 20%, Canadians in the four other quintiles did reasonably well in those 13 years.
The median net worth of Canadian families was C$243,800 in 2012, up 44.5% from 2005, and almost 80% more than the 1999 median of C$137,000, after adjusting for inflation.
Some analysts say the report undermines the idea Canada’s middle class is under siege, and that’s supported by the fact that the three middle quintiles all enjoyed gains of more than 75% since 1999.
But there is a catch. Much of the gain in wealth was driven by the increase in housing prices. If they drop, as many expect, that could erode much of the gains.
“Housing prices went up faster than any other form of wealth, including financial wealth, [and] housing wealth is more equally distributed,” said Andrew Jackson, senior policy adviser to the Broadbent Institute.
As in 1999 and 2005, the principal residence was the largest asset for Canadian households in 2012. Their median value was C$300,000, up 83.2% from 1999 and 46.6% more than in 2005.
Housing prices fluctuate, but debt is generally fixed. When the housing market collapsed in the U.S., many American households that had high net worth on paper watched it being eradicated as slumping housing prices left them with a sharply reduced asset position, or indebted overall.
“The experience of the U.S. tells us that housing values can fall, and housing debts will remain,” Mr. Jackson said.
If Canada’s housing market is subject to a sharp correction, as some analysts forecast, the value of Canadian families’ principal asset will decline without an offsetting decline in debt.
That fact points to the “fragility” of Canadians’ recent gains in wealth, Mr. Jackson said.