The Slowdown in Net Worth

While I've always had an interest in wealth distribution, composition and growth from the perspective of 19th century economic history, recent evidence is also of interest.  I received a report on wealth in Italian households this week and posted a comparison of net worth to income estimates across G-7 countries on Worthwhile Canadian Initiative.  I decided to follow up with a look at data on per capita Canadian net worth for persons and unincorporated businesses.  Given the recent warnings about the rising level of consumer and personal indebtedness in Canada, it comes as no surprise that the last four years have seen a halt to rising net worth.  Between 1971 and 2010, real per capita net worth (in 2002 dollars) in Canada nearly tripled.  It peaked in 2007, then dropped,  but has yet to recover to its 2007 level.  Along with the shock of the financial crisis on investment portfolios, recent years have also seen growth in personal and consumer debt limit net worth growth.  Over the period 2007 to 2010, the average annual growth rate of net worth was 0.7 percent.  Compare that to 3.2 percent for the period 2000 to 2006 or 3.7 percent for the 1990s.  While the growth rate of net worth has slowed, we have not seen the steep declines of the United States where the recession was driven by a collapse in net worth brought about by the end of the U.S. housing boom and the drop in house values.  To date, we have been spared that type of "balance sheet" recession.  However, the February 4th issue of The Economist drew attention to Canada's housing market as being in a bubble of its own. The good news is that a soft landing was predicted.  Rather than a bubble, the Canadian housing market was referred to being more of a "balloon"  and balloons can deflate slowly - if not pricked by a pin.