Photo: Curtis Perry/Flickr
The overall net worth of Canadians may be trending upwards, but so are debt levels, especially for those aged 35 to 44 years. The culprit? In both cases, it’s mainly due to rising home prices.
According to a new report by RBC Economics, Canadians saw a 66 per cent boost in real household net worth from 1999 to 2012, or 4 per cent per year (these figures exclude employee pension plans).
The engine of household net worth growth was real estate equity, which accounted for more than 60 per cent of the total boost in average net worth in the time period studied.
But as home prices continue their climb, so have debt levels among younger demographics. Between 1999 and 2002, RBC found that home prices increased at a rate of 4.6 per cent a year on average. In previous decades, they increased by just 0.3 per cent annually, meaning older demographics that bought into the real estate market before 1999 had more to gain and those trying to get a foothold after 1999 had to deal with pricier properties.
The result? The ratio of household liabilities to net worth for the 35 to 44 demographic was over two times the increase experienced by all-ages. It was also significantly higher than any of the increases felt by other age groups.
For 35 to 44-year olds, that surge is largely due to increased mortgage debt and the fact that many of them were first-time homebuyers during the time period studied.
RBC pointed out that this age group’s debt levels weren’t only due to mortgages: recent low interest rates have made many Canadians more comfortable with taking on other forms of debt, increasingly in the form of a line of credit.
Either way, this makes the demographics of 35 to 44 year olds all the more vulnerable to changes in interest rates or any shocks to the housing market.