Canadians amassed $3.9 trillion in net wealth during the pandemic, largely due to a real estate boom that drove home values 52 per cent higher, but in a sharp reversal, roughly $900 billion of that has been lost as housing markets retrench under the weight of rising interest rates and weakening financial markets, says a report released Wednesday by RBC Economics.
“And the pain isn’t over. We expect losses to net wealth to total $1.6 trillion in quarters ahead, leaving Canadians feeling less wealthy and less confident about spending,” said the report.
“The dramatic decline in net wealth, combined with rising prices and higher interest rates, will cut roughly $15 billion from household spending in 2023. This is one of the factors that will drive Canada into a recession early next year.”
RBC said the decline in household wealth will come at a time when Canadians are already feeling the squeeze of higher inflation and rising interest rates.
“This is particularly the case for Canadians at the lower end of the income scale, who spend a larger share of their earnings on “non-discretionary” or essential purchases like gas, food, and shelter. By contrast, higher-income households—still exercising pent up demand following pandemic lockdowns—have continued to spend on non-essentials like travel and hospitality services. This has kept overall spending strong and added to inflation pressures,” it said.
“Discretionary or non-essential spending on things like home furnishings and renovations drove the pandemic spending surge. But as interest rates rise and price pressures persist, Canadians will increasingly prioritize necessities like groceries and gas—and debt. We estimate households will soon have to allocate 15 per cent of their take-home pay just to debt servicing, with half of this attributed to mortgage costs.”
Mario Toneguzzi is a veteran of the media industry for more than 40 years and named in 2021 a Top Ten Business Journalist in the world and only Canadian)
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