Canadian Household Balance Sheet (2023 Q2)
Maria Solovieva, CFA, Economist | 416-380-1195
Date Published: September 13, 2023
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.
- 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.
This report is provided by TD Economics. It is for informational and educational purposes only as of the date of writing, and may not be appropriate for other purposes. The views and opinions expressed may change at any time based on market or other conditions and may not come to pass. This material is not intended to be relied upon as investment advice or recommendations, does not constitute a solicitation to buy or sell securities and should not be considered specific legal, investment or tax advice. The report does not provide material information about the business and affairs of TD Bank Group and the members of TD Economics are not spokespersons for TD Bank Group with respect to its business and affairs. The information contained in this report has been drawn from sources believed to be reliable, but is not guaranteed to be accurate or complete. This report contains economic analysis and views, including about future economic and financial markets performance. These are based on certain assumptions and other factors, and are subject to inherent risks and uncertainties. The actual outcome may be materially different. The Toronto-Dominion Bank and its affiliates and related entities that comprise the TD Bank Group are not liable for any errors or omissions in the information, analysis or views contained in this report, or for any loss or damage suffered.