Monday, July 4

Posthaste: Canadians built a $2 trillion’wall of wealth’ during the pandemic — and it’s not just a housing story

Good morning!

The global pandemic, tragic and horrible as it has been, has had the surprising effect of creating wealth for Canadians. Not only did many Canadians see their home prices reach new highs, but they also saw their non-residential assets soar during one of the worst health and financial crisis seen in more than a generation.

A new report by BMO Capital Markets shows Canadian households’ net worth rose an astonishing $2 trillion during the pandemic.

“That represents a titanic 17 per cent increase to $13.7 trillion, equal to 933 per cent of disposable income — up 50 ppts from 2019 levels, and double the ratio thirty years ago,” wrote Douglas Porter, BMO’s chief economist, who crunched the numbers “US household wealth has also seen a big boost in the face of the past year’s tough economic backdrop, but both the increase and the wealth-to-income ratio are even more overwhelming in Canada.”

According to BMO, the average Canadian household now has more than $1 million in total assets, even after accounting for debt.

“Household wealth has more than doubled since the past cycle, and tripled just since the dot-com boom at the start of the century — an amazing outcome in the wake of a deep recession,” Porter noted.

While housing played a big role, other assets also surged during the pandemic. Currency and deposits, for example, rose $210 billion. In addition, Canadians also rode the S&P/TSX Capped Composite Index rally, which has jumped nearly 30 per cent during the past year, while the US markets are also trading at record highs.

Equity, mutual funds and ETFs rode the wave of record global stock markets to a $290 billion increase, Porter said, while life insurance and pension values ​​were up $218 billion during the past year.

“These have combined to boost household financial assets by more than $700 billion, while net new borrowing has risen a much smaller $112 billion, lifting net financial assets to $5.7 trillion, or 4 times disposable income,” according to the BMO note, published Friday .

Finally, non-financial assets rose 21 per cent to rise $1.4 trillion — or at more than 10 times the increase in household debt during that period.

Porter argues that the “wall of wealth” has huge consequences for the Canadian economy. First, it eases concerns about household debt, which remains elevated but in many instances is backed by a pile of cash and other assets.

Second, while much of the spending splurge is focused on cash held by Canadian families, the wealth of other assets at their disposal suggests a spending boom may not be as transitory as previously forecast. Indeed, sustained spending from splurging Canadians could see inflation lasting a much longer time than previously suggested.

The accumulation of wealth by Canadian households would also allow provincial and federal governments to ease up on benefits and subsidies and rollback some fiscal support measures.

“Finally, for monetary policy, soaring household wealth and its implications for spending and inflation send a clear message that super-accommodative settings won’t be required much longer,” Porter concluded.