National net worth nudges northward

As a nation, our debt levels might be bad, but our net worth is still growing. Canadian national net worth rose by 0.3% to $6.3 trillion in the fourth quarter of 2010, according to a Statistics Canada report.

On a per capita basis, national net worth grew to $184,200 in the fourth quarter, up from $183,900 in the previous quarter, said the report.

The quarter saw household net worth rise 2.2% to $6.2 trillion, following a 3.0% increase in the previous quarter, it said. Household per capita net worth increased from $178,200 in the third quarter to $181,700 in the fourth quarter.

The S&P/TSX composite index gained about 9% in the fourth quarter reflected by rising values of household equities (including mutual funds) and pension assets. Equity holdings of the household sector increased by $129 billion in 2010 while they increased by $194 billion in 2009, after a $306 billion drop in 2008.

Increased purchases of durable goods led to a rise in household mortgage debt and consumer credit debt. The ratio of household credit market debt to personal disposable income fell to 146.8%, as a 1.8% gain in personal disposable income edged ahead of the credit market debt.

While the Bank of Canada overnight rate remained unchanged in the fourth quarter, the five-year fixed mortgage rate declined. The debt service ratio edged down in the fourth quarter, reflecting lower borrowing costs as well as increased personal disposable income. This ratio has continued to trend down since the third quarter of 2008.

The report noted that homeowner equity as a percentage of real estate assets declined marginally, continuing the trend set in 2010. However, the broader measure of household credit market debt to net worth edged down to 24.2%. This marked the second consecutive quarterly decline in this aggregate, reflecting the impact of improvements in equity markets on net worth over the past two quarters.

The government net debt increased by $19 billion and the ratio of net debt to gross domestic product stood at 45.1%, continuing its upward trend.

The federal government continued to borrow through both treasury bills and bonds, while provincial governments increased debt largely through short-term paper financing.

The increase in corporate debt was largely in new issues of bonds, with a considerable portion of these securities purchased by non-residents.