Canadians’ net wealth hits new highs, debt bubble a ‘myth’: experts

Amid the doom and gloom warnings over record high household debt levels, experts have begun pointing out another milestone that’s been reached in the financial affairs of the nation – the combined value of assets owned by Canadians is hitting new highs.

With the average owner of detached home in Toronto now a millionaire on paper (joining Vancouver), and a years-long bull run on stock markets still in full effect, lifting pension funds and portfolios for retirees and investors, the combined value of assets owned by Canadians has soared to $10.2 trillion, Statistics Canada said last week .

That’s up seven per cent from the fourth quarter of 2013. That huge number compares to the relatively paltry $1.85 trillion households collectively owe in debt. “Put another way, Canadians have roughly $5.50 of assets for every $1 of debt,” BMO chief economist Doug Porter said in a research note Wednesday.

Perspective

Many Canadian households have taken advantage of the unprecedented window of low-interest debt over the past decade, tilting the oft-cited debt-to-income ratio – or the percentage of debt owed versus annual household income – to 163 per cent, a record high. (Translated, it means for every $1.00 in income Canadians earn, we collectively owe $1.63.)

The debt-to-income measure is perhaps the most widely cited warning sign used by experts such as the IMF to suggest Canadians are borrowing too much. But the rise to over $10 trillion in assets such as houses, financial investments and the like puts the debt-to-income measure “in perspective,” Porter said.

The fact that household net worth has broken new highs in recent quarters has been used by some to allay concerns that Canadian household balance sheets are headed down a risky financial path. Some experts have gone so far as to called Canada’s debt binge a “myth,” and touted the fact that household net worth has risen 140 per cent during the country’s decade-long debt boom.

Lion’s share

Yet as BMO’s Porter points out, the celebrated rise in our collective wealth hasn’t fallen evenly across the population. Those with little to no debt and flush investment portfolios have reaped the biggest gains.

“High income earners would be holding the lion’s share of those assets, it’s pretty safe to assume,” Porter said.

At the other end of the spectrum, the Bank of Canada suggests at least 12 per cent of Canadian households – or 1.5 million – are extremely indebted, another record high.

“That’s the problem with looking at these broad numbers. It masks the sub-plots beneath the surface,” Porter continued.

“It may very well be the vast majority of those assets are held by a very small portion of households, whereas the debt is probably concentrated on a different set of households.”

Here’s Porter’s chart, asset values versus debt growth: