Canada’s wealthiest households saw nearly $200,000 wiped out of their net worth in the second quarter of 2022.
According to a Statistics Canada report released on Monday, a perfect storm of economic pressures led to a loss of wealth for households, as asset values fell amid financial and housing market turmoil, while interest rates and inflation increased.
The losses were so great that total gains in household wealth over the previous year were wiped out.
The average household net worth in the second quarter of 2022 was $940,560, down $65,400 from the first quarter and $19,300 from the second quarter of 2021, according to the report.
“Stocks and home prices fell significantly in the second quarter, and there was no evidence of lower debt, leading to lower household net worth,” said Jim Davies, professor emeritus in the Department of Economics at the University of Waterloo.
The debt-to-asset ratio has increased for all age groups, which measures net worth by a person’s assets minus debt – if debt increases and the value of assets decreases, net worth takes one shot, Davies said.
The decline in the net worth of the wealthiest families was mainly due to the combination of falling financial asset values, which fell 6%, and falling property values, which fell 5.4% .
But recent economic headwinds were felt hardest by the less wealthy, who saw their average net worth fall 12% from the first to second quarters, more than double the rate of the wealthiest households. Reductions in wealth for the less wealthy come from above-average increases in debt, the report notes.
The poorest households are likely to be younger on average, said Christopher Sarlo, a professor of economics at Nipissing University and senior fellow at the Fraser Institute. “Wealth has a strong age component. Young people have very little wealth,” he said.
The report found that younger households have seen their net worth decline at the fastest rate compared to older households. Those aged 35 and under and 35 to 45 had on average 8.2% less average wealth compared to the first quarter, while those aged 65 and over saw a drop of 6.1%.
Younger households are more affected by falling property values, as these households tend to rely more on housing as a source of wealth than older households. Overall real estate values fell 5.2% in the second quarter, the first time a reduction of this magnitude has occurred since 2018, the report said.
Young households can recoup their net worth in time when housing and stock markets rebound, Sarlo said, but young college graduates are finding it increasingly difficult to find work that could have significant long-term impacts on their prosperity. future.
The wealth gap also widened for the first time since the start of the pandemic by half a percentage point from the first to the second quarter. In contrast, the wealth gap decreased by two percentage points between the first quarter of 2020 and the first quarter of 2022.
During the pandemic, government support programs helped close the wealth gap, but now its vulnerable households are gone, said Sohaib Shahid, director of economic innovation at the Conference Board of Canada.
The wealth gap could continue to widen if inflation and interest rates continue to rise, he said.
If interest rates continue to rise rapidly and remain high, homeowners will pay more interest on their monthly mortgage payments instead of their principal, accumulating less equity in their homes, Shahid said.
While inflation fell in August to 7% from 7.6% in June, inflation is still “very high”, especially for groceries and energy bills, affecting the least households the most. wealthy because they have less to save and it reduces their disposable income, he added.
“Here we have a growing gap between the haves and the have-nots, as well as a growing gap between the young and the old,” Shahid said.
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