Trends in housing prices and financial markets will have a significant influence on Canadians' net wealth, RBC says
Canadian net wealth is likely to suffer its sharpest decline in decades due to a significantly weaker housing market, according to RBC Economics.
“Though a roaring housing market and surging stock markets created $3.9 trillion in new net wealth during the pandemic, those gains are now reversing,” RBC said in a new analysis.
Moderating home prices and struggling financial markets decreased Canada’s net wealth by a massive $900 billion (representing a 5.4% decline) during the second quarter. RBC said that this was the largest drop on record – and the central bank’s aggressive rate hikes will likely pull home prices even lower, thus leading to more declines in net wealth.
“We expect total net worth to fall by more than $1.1 trillion from peak pandemic levels by the end of this year,” RBC warned. “This decline in household wealth will come at a time when Canadians are already feeling the squeeze of higher inflation and rising interest rates.”
Read more: Canadians are delaying home purchases amid rising economic pressures
RBC said that these trends will come in the wake of significant changes to net wealth during the pandemic. The past two years or so added roughly 52% to home values and more than $2 trillion to the value of household equity in real estate. Overall net worth spiked by $3.8 trillion from Q4 2019 to Q1 2022, helping “drive the initial recovery in consumer spending as pandemic lockdowns eased.”
Over the next few quarters, RBC is anticipating a 41% ($1.6 trillion) reduction of those net worth gains from peak-to-trough.
“While that still won’t retrace all of our pandemic gains, it will nevertheless create a negative ‘wealth effect’ that will drag on consumer spending, even as labour markets soften,” RBC said.
