Net worth hit by stock market tumble

It probably comes as no surprise to anyone on the front line of the financial advice industry, but Canadian household net worth dropped 3.2% in the third quarter of 2008, according to Statistics Canada. This is the biggest percentage drop in net worth since the Asian financial crisis of 1998.

In dollar terms, the stock market drop contributed to a $191 billion decline in Canadians’ net worth. The worst may be yet to come, as market freefall continued into October, setting the stage for a dismal fourth quarter.

The S&P/TSX Composite index fell 18% in Q3, dragging down not only direct personal holdings but also the value of pension plans and life insurance. There was little help for the real estate market, as valuation growth stalled. Overall, the asset side of the household balance sheet declined 2.2%.

On the liabilities side, debt grew more slowly, in large part due to lower mortgage borrowing. Households were carrying nearly 21 cents of debt for every dollar of net worth, or $1.27 for every dollar of disposable income.

There was some good news, however, as Canada’s net foreign indebtedness declined to $14.6 billion. This came as a result of a $30.6 billion increase in Canadian direct investment abroad, to $593.7 billion.

While household balance sheets eroded, the overall national net worth increased by 2.8%, to just over $6 trillion, with gains in non-residential and residential real estate contributing to the increase.

Meanwhile, American household net worth fell 4.7% in Q3, making it the fourth consecutive quarter of decline.

(12/16/2008)