An increase in household debt levels added to the recent hikes in interest rates means that many homeowners are starting to feel a financial “sting,” according to a new study by research group Environics Analytics.
In its nationwide WealthScapes 2018 report, the researchers found that the effects of rising interest rates were particularly acute in Metro Vancouver, where the average household incurred an additional $1,152 in interest charges in 2017.
That is more than double the Canadian national average, which was an increase in interest charges of $544, compared with the year before. Overall, said the report, Canadians paid $9 billion more in interest charges in 2017 than they did in 2016.
“For many Canadians, the rising interest rates over the past year have already cost them the equivalent of an extra mortgage payment,” said Peter Miron, Environics Analytics’ senior vice-president of research and development, and author of WealthScapes 2018. “As interest rates have steadily increased since late 2017, we expect the strain on household finances will be greater this year.”
The average Canadian household’s net worth rose by 8.5 per cent to $807,872 at the end of 2017, but the report pointed out that “much of that wealth was tied up in illiquid assets like real estate.”
Environics Analytics added, “This year marks the first time the average household net worth of an entire province has surpassed that threshold. The average net worth of households in British Columbia reached $1.102 million in 2017. Ontario is just shy of the $1 million mark with an average household net worth of $972,774.”
Across the whole of Canada, about 20 per cent of individual neighbourhoods have an average household net worth of more than $1 million. The report said, “The highest concentration of these ‘millionaire neighbourhoods’ are found in British Columbia, primarily due to very high real estate values. Almost 37 percent of households in B.C. live in a seven-figure net worth neighbourhood.”
The research group also reported that household debt has been rising faster than average incomes, which could reduce disposable income for spending other than essentials such as mortgage payments, bills and food. However, the 2017 increase in average household debt of 4.5 per cent was a lower increase than in previous years.
The report follows the latest data from the Canada Mortgage and Housing Corporation, which found mortgage defaults in Metro Vancouver had plummeted despite high prices and rising interest rates.