National wealth expands on the value of residential real estate and natural resources
National balance sheet and financial flow accounts, first quarter 2017
National wealth, the value of non-financial assets in the Canadian economy, rose 1.9% to $10,258.5 billion at the end of the first quarter. The main contributors to growth were residential real estate and natural resources. The value of residential real estate grew by $89.5 billion, while the value of natural resource wealth increased $73.9 billion, reflecting higher crude oil prices at the end of the first quarter.
National net worth, the sum of national wealth and Canada's net foreign asset position, increased 2.6% to $10,506.5 billion by the end of the first quarter. This increase was due to both higher national wealth and a gain in Canada's net international investment position, as Canada's international assets continued to grow at a faster pace than Canada's liabilities with non-residents. On a per capita basis, national net worth was $287,000 at the end of the first quarter, compared with $280,600 at the end of 2016.
Canada's net foreign asset position rose by $75.6 billion in the first quarter to $247.9 billion, a third consecutive quarterly increase. Canada's international assets have now exceeded international liabilities for 10 straight quarters.
Financial assets drive increases in household net worth
Household sector net worth at market value rose 2.2% in the first quarter to $10,533.6 billion. On a per capita basis, household net worth was $287,700. The leading contributor was a 2.3% increase in financial assets, as the value of equity and investment fund shares, particularly mutual funds, reflected continued strength in international and domestic equity markets. Non-financial assets grew 1.7% over the previous quarter and represented a 7.7% gain over the previous year, reflecting the strength of the Canadian real estate market.
The ratio of total household credit market debt to gross domestic product (GDP) fell to 99.5% in the first quarter from 100.0% in the previous quarter. Total household credit market debt (consumer credit, and mortgage and non-mortgage loans) reached $2,041.1 billion in the first quarter. Consumer credit was $595.3 billion, while mortgage debt stood at $1,341.5 billion. The share of mortgage liabilities to total credit market debt edged up from 65.6% at the end of 2016, to 65.7%.
Household credit market debt as a proportion of household disposable income (adjusted to exclude pension entitlements) fell from 167.2% in the fourth quarter to 166.9%, as household income (+0.9%) rose at a faster pace than household credit market debt (+0.7%). In other words, there was $1.67 in credit market debt for every dollar of household disposable income. Leverage, as measured by the ratio of household debt to assets, edged down from 16.6% at the end of the fourth quarter to 16.4% at the end of the first quarter.
Household demand for funds declines
On a seasonally adjusted basis, households borrowed $27.5 billion in the first quarter, down slightly from $27.6 billion borrowed the previous quarter. Mortgage borrowing increased $2.7 billion from the fourth quarter to $20.9 billion, while borrowing in the form of consumer credit and non-mortgage loans declined $2.8 billion to $6.5 billion.
The household debt service ratio, measured as total obligated payments of principal and interest as a proportion of household disposable income edged up from 14.1% in the fourth quarter to 14.2% in the first quarter. The interest-only debt service ratio, defined as household mortgage and non-mortgage interest paid as a proportion of adjusted household disposable income, stood at 6.1%, down slightly from the previous quarter. The household savings rate decreased from 5.3% in the fourth quarter to 4.3% in the first quarter.
The historically low interest rate environment prevailing since 2008 has allowed the household sector to increase mortgage principal payments. At the end of the first quarter, the portion that households spent on mortgage principal payments exceeded that spent on mortgage interest paymentsthe first time this has happened since these statistics were first compiled for the first quarter of 1990.
Provincial and federal governments increase borrowing
The federal government recorded $2.0 billion in net issuances of Canadian bonds in financial markets in the first quarter, partially offset by $1.6 billion in retirements of short-term paper. Conversely, net borrowings of the provincial governments amounted to $8.0 billion in the quarter. The bulk of the borrowing was composed of $12.5 billion in net issuances of Canadian bonds and debentures, and was partially offset by $9.8 billion in retirements of short-term paper.
The ratio of federal government net debt (book value) to GDP edged down from 30.8% at the end of the fourth quarter to 30.7% at the end of the first quarter. On the other hand, the ratio of provincial government net debt (book value) to GDP edged up from 24.2% to 24.3% over that same period.
Sharply higher demand for funds by non-financial private corporations
Non-financial private corporations' demand for marketable funds increased substantially, from a $11.4 billion financing requirement in the fourth quarter to $53.5 billion in the first quarter. The pace of borrowing rose for almost all components, reflecting stronger mergers and acquisitions activity and higher capital investment financing requirements. New issues of equity increased from $5.4 billion to $35.4 billion, non-mortgage loans rose from $3.8 billion to $10.1 billion, and $2.2 billion of short-term paper was issued in the first quarter compared with a redemption of $8.6 billion in the fourth quarter.
On a book value basis, the credit market debt-to-equity ratio of non-financial private corporations decreased from 71.5% in the fourth quarter to 68.8% at the end of the first quarter. This represented 69 cents of credit market debt for every dollar of equity, compared with 72 cents at the end of the previous quarter.
Financial corporations' assets increase
The value of financial assets of financial corporations increased 1.6% by the end of the first quarter to $13,441.8 billion. The principal contributors to growth were increases in domestic and foreign equity and in investment fund shares, reflecting continued strength in international and domestic equity markets.
Overall, the financial sector provided $39.7 billion of funds to the economy through financial market instruments on a net basis, a decrease from the previous quarter's value of $64.4 billion. This decline in net lending activity was mainly the result of a $26.9 billion drop in net investment in corporate bonds, falling from $47.1 billion in the fourth quarter to $20.2 billion in the first quarter.