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Canadian Household Worth: Urban vs Suburban Areas

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Canadian Household Worth: Urban vs Suburban Areas
3 min. read
Canadian Household Worth Divided Between Urban & Suburban Areas

Image: Aitor Rodriguez Claro / Shutterstock.com

While the urban areas are one step ahead when it comes to household net worth, the suburbs are trailing behind. This divergence between the vibrant city cores and the quiet surrounding regions is mainly tied to how the real estate markets are performing.

According to the annual Wealthscapes survey from Environics Analytics, city dwellers did better on household net worth than suburbanites in 2018. While stronger economies or a more vigorous job scene might be the first theories that come to mind, real estate is actually guiding the split-market evolution; in the last few years, house prices have performed better in urban areas than in their suburban counterparts.

For example, in Toronto, household prosperity is influenced by whether you reside in the city or in the outskirts. In 2018, the average net worth of households increased by 0.6% to $959,946 in the urban Toronto market. But, in the suburban area, net worth declined by 0.6% to $997,012; home values were included in the total net worth.

Montreal saw declines in the average household net worth in both urban and suburban regions. However, urbanites have been more careful with their wealth with a decrease of 0.3% compared to the 1.1% decline in the suburbs.

Interestingly enough, Vancouver seems to play by its own rules; the average net worth here declined faster in city cores than in the surrounding areas. The household net worth plummeted in the city core by 2.9%, while in the suburbs it dropped by only 0.5%.

This type of situation can have consequences on the economy due to the “wealth effect.” People tend to spend more when they notice they have more wealth – even if they don’t have more cash to spend. In a similar way, people spend less when they see they have less wealth.

What’s Causing the Divergence

Peter Miron, senior vice president of research and development at Environics Analytics, said in an interview for The Huffington Post that Canadians were choosing the convenience of the urban lifestyle to the detriment of the suburban life. That’s also why housing prices are increasing in downtown areas.

Another factor is the stock market decline at the end of 2018, which affected the suburban areas with the average stock portfolio losing 14.5%. Suburban regions tend to have older populations, and older citizens usually have more savings in stock portfolios.

Younger Canadians Turn to Investments Other Than Housing

The stock market decline has an influence on younger generations, as well, and even more so now than it used to with housing affordability close to historic lows. Miron believes many younger Canadians are staying out of the housing market and investing the money they saved up for a home. He said:

“When we look at these younger households, they’re choosing to rent a little longer, not hopping into the housing market either by choice or financial circumstance. But it’s not like they’re blowing their money. They’re actually saving up those liquid assets, and finding other ways to save their money.”

This can be observed particularly in the Vancouver real estate market, which is one of the least affordable markets in the world.

Signs of Financial Caution in Times of Declining Wealth

On a national level, the average Canadian net worth dropped by 1.1% to $678,792 in 2018. Despite real estate value having steadily increased by 1.6% for the year, these winnings were offset by other factors, such as rising interest rates and investment losses. In Business Insider, Miron said:

“Despite being relatively prudent in terms of their debt acquisition and repayment in 2018, Canadian households felt the effects of a significant decline in equity market valuations over the fourth quarter of the year.”

Faced with declining wealth, Canadians are finding ways to balance their finances – such as counteracting the higher interest rates by converting their variable-rate, non-mortgage debt into locked-in loans. Miron believes citizens are actively taking control of their debt and gradually increasing their savings.

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