The shifting asset and debt composition of Ontario’s households
A component of this year’s annual report, Unfinished Business: Ontario since the Great Recession, is the analysis of the net worth of households between 1999 and 2016 to see whether they were impacted by the Great Recession. Interestingly, the net worth of families in Ontario have increased across all net worth deciles, doubling at the 40th percentile and above. The doubling of net worth appears to be driven by home ownership. In fact, the median net worth of households owning real estate nearly doubled from $371,000 in 1999 to $728,000 in 2016 while the median net worth among non-home-owning households declined from $17,000 to $15,000 over the same period. This growth is in line with Ontario’s housing prices, which have more than doubled in real terms from $245,000 in 1999 to $552,000 in 2016. If household net worth is driven by inflated real estate prices, will a downturn in the housing market wipe out the wealth that Ontarian families have accumulated?
Net worth is what is left over when debts are subtracted from assets. Debts can include real estate, financial assets, pensions, lines of credit, vehicle loans, and credit cards. The top eight deciles of households by net worth have all increased their proportion of principal real estate by approximately five percentage points. This appears to be offset by a proportional shift away from financial assets, such as stocks and bonds, with most deciles seeing a three percentage point decline in financials as a share of assets. For example, the fifth net worth decile had its financial assets grow from $32,500 to $49,500 (52 percent) between 1999 and 2016, but the value of principal residency grew substantially more from $133,700 to $276,400 (107 percent). So while financial assets grew in terms of dollars, a greater portion of household wealth is now allocated to real estate rather than traditional savings and investing.
Percentage point change in assets and debt composition by decile, Ontario, 1999-2016
Conversely, liabilities have not shifted the same way, with principal mortgages declining as a share of overall debt for half of the net worth deciles. The largest changes among liabilities were increased reliance on the lines of credit among the bottom six net worth deciles and growth in secondary mortgage liabilities among almost all net worth groupings. For example, for the bottom net worth decile, which experienced the largest proportional increase in line of credit usage, the average line of credit grew from $852 in 1999 to $3,100 outstanding in 2016.
The most drastic liability change occurred in the ninth net worth decile in which secondary mortgages made up 10.9 percent of liabilities in 1999, but increased 15.5 percentage points to 26.4 percent by 2016. This was closely followed by a growth of 8.0 percentage points for the top decile, increasing secondary mortgages from 27.5 to 35.5 percent. This suggests that the wealthiest households in Ontario have taken on more debt during this extended low interest rate period in order to capture the potential returns on real estate.
Despite households having a larger share of their assets associated with real estate than previous time periods, it does not appear to be substantially out of line with the growth in overall assets. Liabilities are also not becoming more concentrated in principal residencies so a downturn in real estate prices is less likely to put a mortgage underwater. Real estate liabilities have grown most in secondary properties, presumably for households that can withstand some level of economic downturn. Given this, it does not appear that Ontarian households are at an exceptionally high risk due to their asset and debt allocations.
To learn more about the net worth composition of Ontarian households and how Ontario has fared through the Great Recession see: Unfinished Business: Ontario since the Great Recession.
Written by Chris Mack
Photo credit: Mike Ellis
 Institute for Competitiveness & Prosperity analysis based on data from Canadian Real Estate Board.