After building trillions of dollars in net wealth during the COVID-19 pandemic, about $900 billion was lost in the second quarter of 2022 due to weaker housing and financial markets, making it the largest drop on record, a recent analysis from RBC has found.
The report, published on Oct. 26, says “roaring” housing and “surging” stock markets created $3.9 trillion in new net wealth during COVID, with the pandemic real-estate boom driving home values up 52 per cent.
However, a “chill” in home prices due to rising interest rates, as well as weaker financial markets, resulted in a $900 billion or 5.4 per cent loss in the second quarter of this year, RBC says.
And the bank says more declines are coming. Total net worth is expected to fall by more than $1.1 trillion from peak pandemic levels by the end of the year, although this will still be above pre-pandemic levels, RBC predicts.
“This decline in household wealth will come at a time when Canadians are already feeling the squeeze of higher inflation and rising interest rates,” the report says.
“This is particularly the case for Canadians at the lower end of the income scale, who spend a larger share of their earnings on ‘non-discretionary’ or essential purchases like gas, food, and shelter.”
Higher-income households, meanwhile, have continued to spend on non-essentials such as travel and hospitality, which has kept overall spending strong and added to inflation pressures, according to the analysis.
On Friday, Statistics Canada reported that Canadian real gross domestic product rose slightly by 0.1 per cent in August.
On Wednesday, the Bank of Canada hiked its key interest rate by half a percentage point to 3.75 per cent in an effort to bring inflation down, with governor Tiff Macklem suggesting more rate hikes are expected. The bank is predicting a possible recession in Canada in the first half of 2023.
Rising interest rates and price pressure will lead Canadians to prioritize necessities such as groceries and gas, as well as debt, the RBC analysis says.
RBC estimates households will need to set aside as much as 15 per cent of their take-home pay just to service debt, half of it due to mortgage costs.
Canadian spending appears to have plateaued in the summer after rising in the spring following Omicron-induced lockdowns, the report says.
But a deepening decline in purchases of some discretionary goods, such as furniture, will weigh on businesses, particularly in manufacturing, RBC says.
With files from CTV National News Producer Jordan Gowling and The Canadian Press