Canadian Household Finances: What’s Next for Budgets and Balance Sheets?

Summary of the publication

As the rapid run-up in asset values during the pandemic starts to reverse, Canadians are wondering what’s next for their finances. We expect income growth to remain robust in the face of rising interest rates, buoying consumption. At the same time, the savings rate should gradually trend lower while still remaining elevated relative to pre-pandemic levels. But net wealth is likely to be a bigger concern for most households. Because liabilities tend to be stickier, falling asset prices erode net wealth. This dynamic is projected to persist through 2022 if home and other asset prices continue to decline. Delinquencies are also projected to rise. However, most Canadian households should weather this correction. With the Bank of Canada likely to begin cutting interest rates before the end of 2023, asset prices are ultimately expected to stabilize.