Canadians Lose $900 Billion in Net Wealth Due to ‘Cooling’ House Prices

After accumulating trillions of dollars in net wealth during the COVID-19 pandemic, an estimated $900 billion was lost in the second quarter of 2022 due to weaker real estate and financial markets, making it the strongest record low, according to recent RBC analysis.

The report, published on October 26says “roaring” housing and “booming” stock markets have created $3.9 trillion in new net wealth during COVID, with the pandemic housing boom pushing home values ​​up 52%.

However, a “cooling” in house prices due to rising interest rates, along with weaker financial markets, led to a loss of $900 billion or 5.4% in the second quarter of this year. year, according to RBC.

And the bank says more cuts are coming. Total net worth is expected to drop more than $1.1 trillion from peak pandemic levels by the end of the year, though still above pre-pandemic levels, predicts RBC.

“This decline in household wealth will come at a time when Canadians are already feeling the pressure of inflation and rising interest rates,” the report said.

“This is particularly the case for Canadians at the lower end of the income scale, who spend a greater share of their income on ‘non-discretionary’ or essential purchases like gas, food and shelter.”

High-income households, meanwhile, continued to spend on non-essential goods such as travel and accommodation, keeping overall spending high and adding to inflationary pressures, the analysis found.

On Friday, Statistics Canada reported that Canada’s real gross domestic product edged up by 0.1% in August.

On Wednesday, the Bank of Canada raised its benchmark rate by half a percentage point to 3.75% in a bid to bring inflation down, with Governor Tiff Macklem suggesting further rate hikes are expected. The bank plans a possible recession in Canada in the first half of 2023.

According to RBC analysis, rising interest rates and price pressure will cause Canadians to prioritize basic necessities like groceries and gas, as well as debt.

RBC estimates that households will need to set aside up to 15% of their take-home pay just to pay off their debt, half of it due to mortgage costs.

Canadian spending appears to have plateaued over the summer after rising in the spring following Omicron-induced shutdowns, the report said.

But a growing decline in purchases of some discretionary goods, such as furniture, will weigh on businesses, particularly in the manufacturing sector, according to RBC.


With files from CTV national news producer Jordan Gowling and The Canadian Press

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