Canadian Household Balance Sheet (2023 Q2)

Canadian households' wealth climbs higher as assets grow faster than liabilities.

• Canadian household net worth (the value of all assets less all liabilities) climbed higher for the third quarter in a row, rising by close to $256 billion or 1.6% quarter-on-quarter (q/q) to $16 trillion in the second quarter of 2023. 
• Financial assets (+1.3% q/q), continued advancing for the fourth consecutive quarter on the back of solid equity market gains, with foreign markets outperforming the domestic one. 
• The value of real estate climbed higher, but growth decelerated to 2.0% from 2.7% q/q. The series are not adjusted for seasonal factors and reflect the typical activity of the busiest season in real estate.
• Household liabilities expanded by $17.1 billion (0.6% q/q, seasonally adjusted) – decelerating from 0.7% in the first quarter of 2023. 
  • Slower growth was underpinned by a deceleration in mortgage credit growth (+0.5% q/q). 
  • In contrast, growth in non-mortgage debt accelerated from 0.1% q/q in the first quarter to 0.6% q/q in the second quarter.
• Income outpaced growth in debt, leading to a decline in the debt-to-income ratio to 180.5% from an upwardly revised 184.2% in the prior quarter. 
• The debt service ratio – which is total household debt payments relative to personal disposable income – declined to 14.8% from 14.9% in Q1. Debt payments rose 2.1% q/q with interest payments increasing 4.7% q/q, principal declining -1.8% q/q.

Key Implications

• At first blush, this report brings some good news about the state of Canadian households through the first half of the year. Household wealth continued rising on improved financial market performance, a rebound in real estate valuations, and slower liability growth. Moreover, strong disposable income growth helped improve measures of Canadian households' financial capacity to service debt, with both the debt-to-income and debt service ratios improving.
• However, these improvements, mask the pain felt by some Canadian households. The recent rise in debt servicing costs at a time of a still rampant inflation will limit wealth's contribution to spending. In addition, higher borrowing costs have already resulted in credit deterioration. According to Equifax Canada's Q2 2023 consumer credit report, delinquency rates have either reached, or are near, pre-pandemic levels for most consumer credit products. The Bank of Canada will need to maintain a close watch on household credit performance as higher interest rates continue to weigh on Canadian households this year.

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