Liquid-asset growth outpaces property value rise

It was big news that the wealth of the average Canadian household topped $400K for the first time. For advisors, the even better news is that growth in liquid assets – cash and securities – outpaced the rise in property valuations.

Liquid-asset growth outpaces property value rise

The average household net worth of Canadians topped $400,000 for the first time in 2012, rising 5.8% to $400,151. But for financial professionals, the better news may be that the increase in wealth was much more balanced between real estate and liquid investable assets.

“It wasn’t really as biased [toward real estate] in this past year as it has been in most, it was more evenly split between real estate and liquid assets,” Environics Analytics senior research associate Peter Miron  told WP. “There was a little bit more growth in liquid assets in 2012 due to the strong stock market performance, unlike the year before when it was a little bit flatter.”

Not only do Canadians have more investable cash, but with securities outperforming real estate they may consider investing some of that extra money in securities rather than buying a new home.

While improved markets led to an increase in portfolio valuations, Miron, who was lead developer of Environics WealthScapes 2013 database, said there was also saw an increase in savings and slower accumulation of debt, especially non-mortgage consumer debt. “People were socking away more money into the markets.”

A strong 5.4% increase in liquid assets outpaced the 5.1% increase in real estate, and there was a relatively modest 3.3% rise in debt. Average household liquid assets rose to $210,385 by end-2012 and the average value of real estate was $309,881.

“Savings generally includes the kind of products you get at bank branches [savings, chequing and term deposits], while the investment component is traditionally that portion that is more advisor managed, although that line is now blurring a little bit,” said Miron.

Much of the growth in liquid assets can be attributed to the robust stock market: Between the end of 2011 and 2012, the average household saw the value of their stocks rise 5.6% and investment funds increase 8.9%. (For full data see p.2)

Canadian investors benefitted from the rebound in the US economy and financial markets and, despite the continuing euro crisis, improving economic news from Europe. “Last year was marked by a small but noticeable global economic recovery,” said Miron, “with the US recovery starting to take hold at the end of 2012.”

Continued on p.2

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Debt data also revealed some positive news, with the rise in “good” debt outpacing the rise in “bad” debt. Mortgage debt rose 4.1% while consumer debt – credit cards and lines of credit – was up a modest 1.4%. The mortgage debt increase reflected rising property pricesas new homeowners needed to take out larger loans. But with lower effective interest rates on mortgages, averaging 3.7%, consumers were able to purchase more with a smaller monthly payment.

At the same time, consumers racked up less credit card debt. One theory holds that Canadians, increasingly aware of the high interest rates on credit card balances, are turning to alternative forms of payment such as debit cards, Environics said.

The average Canadian household is still richer than the average US household (C$400,151 versus US$381,086), though the difference between the two countries is now about half what it was last year.

Compared to the US, Canadian households can claim twice as much in real estate (C$309,881 vs. US$152,401), more in assets (C$520,266 versus US$481,357) and bank deposits (C$82,349 vs. US$66,811).

However, Canadians should be careful not to feel too self-satisfied. In the last year, US household debt declined 2.4%, from US$102,715 to US$100,272, while Canadian household debt rose 3.3%, from C$116,309 to C$120,115. Americans may have learned a lesson from their formerly debt-averse neighbours to the north.

Average Canadian household wealth 2012 vs, 2011

Year End

2012

2011

Household Income

$83,389

$82,029

Net Worth

$400,151

$378,093

Liquid Assets

$210,385

$199,543

Savings and Chequing

$43,196

$41,530

GIC and Term Deposits

$39,153

$38,631

Stocks

$46,112

$43,661

Bonds

$6,678

$6,634

Investment Funds

$75,246

$69,087

Real Estate

$309,881

$294,859

Debt

$120,115

$116,309

Mortgages

$83,051

$79,757

Consumer Debt

$37,064

$36,552

 

Have your clients been more eager to invest in securities, or do they prefer assets that are "safe as houses'? Sound off in the comments.

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