Real Estate Continues to Make Canadians Wealthier

Statistics Canada’s issued two reports on September 15; one reporting good news on the value of household wealth; the other showing that the value of employer-sponsored pension funds declined.  

Meanwhile, the Conference Board of Canada reports that while global growth prospects are weak in 2016, economies that can recreate in light of a great paradigm shift will growth exponentially.

While national net worth declined slightly in the second quarter from $265,200 to $264,600, on a per capital basis, household net worth was up almost 2% to $9,837 billion; an average of $271,300 on average.  The main reason was gains in the value of real estate holdings, which rose 2.2%.  But financial holdings grew too:  1.7%.

Households borrowed more too:  $29.2 billion, which was an increase of $3.5 billion from the first quarter; mortgages represented more than half - 65% - of that increase.  On a seasonally adjusted basis, the household debt service ratio increased only slightly from 14.1% to 14.2%.  Low interest rates have really helped here.  At historic lows, Canadians have been able to use more of their mortgage payment to pay down principle.

That may be a very good thing, as the market value of employer-sponsored pension funds declined by 1.3% to $1.6 trillion in the first quarter of the year.  Over 6 million Canadians are members of employer sponsored funds, with the vast majority of the funds (83.3%) being managed by trusteed funds.  The remaining members’ assets are managed by insurance company contracts.

The value of pension funds held in stock was a big part of the decline:  stocks fell 3.1% in the first quarter; bonds fared a bit better with a decline of only 2.2%.  Real estate holdings in pension funds continued to do well:  an increase of 3.4% was noted.

Also noteworthy:  the value of foreign investments held in Canadian pension funds declined by 6.0% in the first quarter.  These assets make up one third of total pension fund assets.   The report went on to note the following for the first quarter of the year:

• Employer and employee contributions decreased by 10.2%
• Investment income was down 23.1%
• Profits from the sale of securities was down 68.9%
• Expenses, primarily due to increased losses on the sale of securities, were up 22.2%.
• As a result, net income fell to $6.1 billion in the first quarter, down from $29.7 Billion in the fourth quarter of 2015.

The Canada Pension Plan posted its June 30, 2016 results in mid-August, indicating a gross investment return of 1.53%; net 1.45%.  Its net assets were $287.3 Billion and net investment returns contributed $4.1 billion to the pot after all costs and contributions.

The bottom line?  The ability to save in a low-interest environment enable tax-wise Canadians to assemble an impressive portfolio of financial and non-financial assets.  Together with contributions to the CPP, and well managed debt, the future looks good for most working Canadians, as they accumulate and growth their household wealth.

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