National balance sheet and financial flow accounts, third quarter 2022
Released: 2022-12-12
National net worth squeezed by declining markets; falls for second consecutive quarter
National net worth, the sum of national wealth and Canada's net foreign asset position, declined 3.3% at the end of the third quarter to $17,172.4 billion. This represented a drop of over half a trillion dollars and was the largest decline since the fourth quarter of 2008. The value of real estate, natural resources wealth and Canada's international investment position all fell during the third quarter of 2022. National net worth per capita fell 3.8% to $438,815 in the third quarter.
The total value of non-financial assets in Canada, also referred to as national wealth, declined 3.1% to $16,600.9 billion in the third quarter. The value of residential real estate fell $287.3 billion to $8,398.8 billion, a second consecutive decline in value as the housing market continued to cool amidst rising borrowing costs. The value of natural resources in Canada (excluding land) declined 13.4% to $2,325.7 billion as global commodity prices, particularly energy and metals, declined in the third quarter. This followed an exceptionally strong second quarter in which natural resources jumped by 26.2% and marked the first decline in natural resource wealth since the second quarter of 2020.
Highlights
On a nominal basis, the Canadian economy contracted in the third quarter as the gross domestic product (GDP) implicit price index, a measure of economy-wide prices, declined for the first time since the second quarter of 2020 and wage growth slowed. Despite the decline in nominal GDP, real GDP grew, mainly driven by growth in exports, non-residential structures, and business investment in inventories, while housing investment and household spending declined.
The savings rate moved higher in the third quarter as modest growth in household disposable income continued to outpace the tepid rise in household consumption. Household mortgage borrowing sharply declined in the third quarter following nearly two years of strong mortgage borrowing activity. Housing demand softened as the Bank of Canada increased the policy interest rate from 1.50% in the second quarter to 3.25% in the third quarter—with further increases to 4.25% announced in October and December. In addition to reduced mortgage borrowing, households also recorded net withdrawals of mutual fund investments for a second consecutive quarter.
Both bond and equity markets felt the effects of continued interest rate increases, exchange rate volatility and economic uncertainty. Bond prices continued to decline, and equities shed value across both domestic and international markets amidst expectations of further rate increases. The federal government recorded net repayments of debt in the third quarter, ending its streak of strong bond borrowing as the Bank of Canada continued its program of quantitative tightening.
Canada's net foreign asset position, the difference between Canada's international financial assets and international liabilities, was down by $44.9 billion to $571.5 billion at the end of the third quarter, its lowest level since the first quarter of 2020. This marked the third consecutive quarterly decline, as global equity markets continued a downward trend. In comparison, Canada's net foreign asset position stood at $1,307.4 billion at the end of 2021.
Chart 1
Change in national net worth by component
Household savings rate rises as household compensation growth outpaces consumption
In the third quarter, seasonally adjusted household compensation (nominal terms) grew by 1.2% following a rise of 1.9% in the second quarter, mainly due to slower wage growth in the goods-producing industries (+0.8%). This was the lowest growth in wages and salaries since the second quarter of 2020 when the COVID-19 pandemic was declared, and unemployment increased substantially. Overall, the growth in household disposable income (+0.8%) outpaced a more restrained rise in household consumption (+0.5%), which pushed household net savings higher. The savings rate grew to 5.7% in the third quarter from a downwardly revised 5.1% in the second quarter. By comparison, the average savings rate over the decade prior to 2020 stood at 3.4%.
Chart 2
Household savings rate, seasonally adjusted
Households sell off mutual fund shares for the second consecutive quarter
Household net savings represent a source of funds that are available to increase non-financial and financial wealth through the purchase of assets and settlement of liabilities. The downward trend in households' mutual funds investment, which began in the second quarter, continued in the third quarter, as households recorded $15.5 billion in net redemptions of mutual fund shares from July to September. This follows record high household net investment in mutual funds from the fourth quarter of 2020 to the first quarter of 2022. However, money market funds, which invest in short-term fixed-income securities such as treasury bills, recorded a third consecutive quarter of net investment inflow as households may have shifted to funds less exposed to equity market volatility.
With rising interest rates, households have also been shifting their preferences towards fixed-term deposits such as guaranteed investment certificates. Higher returns combined with the relative security of fixed-term deposits is likely increasing their attractiveness to household depositors, compared with other types of investments that are currently subject to more uncertainty. Overall, households added $33.5 billion of total currency and deposits in the third quarter, as their holdings of this asset neared the $2 trillion mark.
Households' net worth continues to relinquish pandemic-era gains
Household sector net worth—the value of all assets minus all liabilities—shed $331.7 billion in the third quarter to reach $15,098.8 billion, a decline of 2.1% from the second quarter. This continues the downward trend from the second quarter as household wealth continued to stumble on challenging equity, bond, and housing markets, which affected asset valuations. The deterioration over the previous two quarters (-$1.3 trillion) erased most of the gains in net worth recorded from the third quarter of 2021 to the first quarter of 2022.
The value of households' total financial assets edged down (-$32.0 billion) in the third quarter, declining for the second consecutive quarter as financial markets weakened. This decrease was compounded by a $258.5 billion drop in the value of non-financial assets, as the decline in real estate valuations and activity that began in the second quarter continued, albeit to a lesser degree, and the housing market grappled with rapidly rising interest rates. Financial liabilities were up $41.2 billion during the third quarter due to growth in mortgage and non-mortgage debt.
Residential real estate slump persists, while borrowing costs continue to climb
The value of household residential real estate declined by 3.4% (-$271.3 billion) in the third quarter as the policy interest rate reached 3.25% from 1.50% at the end of the second quarter. The decrease in residential real estate followed a drop of 5.1% in the second quarter but was more than $2 trillion (+35.4%) higher than the level recorded at the end of 2019. The value of residential land declined 7.1% in the third quarter of 2022, while residential structures posted a modest increase (+1.8%) as housing investment continued to ease. The average resale price (not seasonally adjusted) dropped by 3.9% from the second quarter to reach roughly $639,000 in the third quarter, edging up to $645,000 in October. Home resale inventory levels increased on a seasonally adjusted basis in the third quarter, but remained at lower-than-average levels.
Real estate as a percentage of household disposable income, an indicator of housing affordability, declined sharply to 525.1% in the third quarter, the second consecutive quarterly drop. This compares with 551.3% at the end of the second quarter of 2022 and 452.7% at the end of the fourth quarter of 2019.
Household financial assets looking for their groove, hindered by flagging equity markets
The value of household financial assets fell slightly (-0.4%) in the third quarter, as declines in equity holdings were partially offset by increases in currency and deposits. Household wealth held through institutional investors such as mutual funds and insurance and pension plans shed $51.0 billion in value by the end of the third quarter compared with the second quarter, mainly because of downward revaluations (-$43.9 billion). This was the third consecutive quarterly decline in the market value of these investments.
The Toronto Stock Exchange composite index (TSX) declined 2.2% in the third quarter, following a 13.8% decline in the second quarter. By comparison, the Standard and Poor's 500 (S&P500), which is more weighted towards technology companies, dropped 5.3% in the third quarter, the third consecutive quarterly decline, but a reprieve from the double-digit drop (-16.4%) in the second quarter. Also impacting household equity values, the Canadian dollar depreciated 6.0% relative to the US dollar over the third quarter, the largest decrease since the first quarter of 2020. This impacts foreign investments positively as most Canadian foreign investment is in US dollars. Thus, the decline in the value of foreign investments from weaker US equity markets over the third quarter was slightly offset by the appreciating US dollar.
Bond prices declined slightly in the third quarter, following a substantial decrease in the second quarter, as yields for debt securities edged higher. Higher interest rates generally translate into higher bond yields, meaning lower prices for fixed income securities.
Household borrowing posts significant slowdown
Chart 3
Household credit market debt, seasonally adjusted flows
On a seasonally adjusted basis, the pace of credit market borrowing decelerated significantly from the second quarter, with households adding $33.0 billion of debt in the third quarter, down from $56.8 billion in the second quarter. This marks the slowest pace of household credit market and mortgage borrowing since the second quarter of 2020. Nonetheless, mortgages (+$26.6 billion) remained the largest contributor to credit market borrowing in the third quarter of 2022, while demand for non-mortgage loans was $6.4 billion.
In terms of new residential mortgage funds advanced by financial institutions, which include chartered banks, the popularity of variable rate mortgages continued to fall given the interest rate environment. Variable rate borrowing represented 43.9% of new funds advanced versus fixed rate alternatives in the third quarter, compared with 51.1% for variable rate borrowing in the second quarter. By October, the share for variable rate borrowing was trending even lower. Fixed-term mortgages between 1 and 3 years expanded their share of new lending to 18.6% in the third quarter from 11.1% in the second quarter. Overall, variable rate mortgages represented over one-third (34.7%) of total outstanding mortgage debt in the third quarter, up from 33.3% in the previous quarter.
The stock of household credit market debt (consumer credit, and mortgage and non-mortgage loans) grew 1.2% to reach $2,796.9 billion in the third quarter. Mortgage debt reached $2,074.3 billion, while non-mortgage loans stood at $722.6 billion, the second highest level on record as total non-mortgage debt neared pre-pandemic levels.
Households' interest payments jump as interest rates continue to climb
On a seasonally adjusted basis, household credit market debt as a proportion of household disposable income increased to 183.3% in the third quarter from 182.6% in the second quarter, still lower than the record high of 184.6% in the third quarter of 2018. In other words, there was $1.83 in credit market debt for every dollar of household disposable income in the third quarter of 2022. Although households' disposable income was higher (+0.8%) in the third quarter, the rise was outpaced by stronger growth in household credit market debt (+1.2%).
Chart 4
Household credit market debt to household disposable income, seasonally adjusted
The household debt service ratio, measured as total obligated payments of principal and interest on credit market debt as a proportion of household disposable income, increased to 13.97% in the third quarter from 13.46% in the second quarter—the largest increase in the ratio since the third quarter of 2020. The growth in household disposable income before interest payments (+1.8%) in the third quarter of 2022 was outweighed by a record rise in debt payments (+5.6%). While variable rate mortgages are more sensitive to interest rate increases, fixed payment variable rate mortgages have leeway to absorb these higher borrowing costs without a concomitant rise in total payments. However, some fixed-payment variable rate mortgage holders may reach their trigger rate, resulting in higher overall payments. Overall, interest payments expanded 16.2% in the third quarter, the largest increase in total interest payments on record. Meanwhile, obligated payments of principal declined 3.7%. As a result, interest payments as a share of overall debt payments grew to over half (51.3%) in the third quarter, up from 46.7% in the second quarter.
Federal government records net debt repayments for the first time since the third quarter of 2020
Chart 5
Net financial liabilities as a percentage of gross domestic product
The federal government recorded $2.9 billion of net debt repayments in the third quarter, compared with $11.5 billion of credit market debt borrowing in the second quarter. Net redemptions of federal government bonds (-$5.9 billion) were partially offset by net issuances of short-term paper (+$3.2 billion). This was the first net debt repayment of credit market debt since the third quarter of 2020 and the first net redemption of federal government bonds since the third quarter of 2018.
Non-residents were the largest purchasers of federal government bonds (+$11.4 billion) in the third quarter of 2022, while the Bank of Canada continued to shrink its balance sheet by allowing bonds to mature without replacement (-$23.6 billion).
Demand for credit market debt from the other levels of government (excluding social security funds) was $9.4 billion in the third quarter. This demand was composed of $7.9 billion in net issuances of bonds and $1.1 billion in net issuances of paper.
Financial liabilities as a proportion of gross domestic product declines
The ratio of federal government net financial liabilities (the book value of total financial liabilities less the market value of total financial assets) to gross domestic product (GDP) declined to 34.8% in the third quarter from 35.8% in the second quarter, while the ratio of other levels of government net debt to GDP fell to 16.0% from 17.4% over the same period. Both ratios declined as GDP rose and federal government and other levels of government net financial liabilities shrank. Net financial liabilities have replaced the previous concept of net debt. Details regarding this change can be found in "An overview of revisions to the Financial and Wealth Accounts, 1990 to 2022."
Private non-financial corporations' strong demand for non-mortgage loans persists for a second consecutive quarter
Chart 6
Demand for funds by private non-financial corporations
In the third quarter, the demand for funds by private non-financial corporations moved higher to $31.0 billion from $16.8 billion in the second quarter. Borrowing was mainly in the form of non-mortgage loans (+$36.5 billion) and mortgage loans (+$4.4 billion). This was partially offset by a net redemption of listed shares (-$10.3 billion). Listed shares have recorded their largest nine-month cumulative net redemption on record, reflecting a mix of merger and acquisition activity and share repurchases.
Private non-financial corporations' mineral and energy reserves, which are significant components of their natural resource wealth and net worth, decreased by 14.2% in the third quarter. This was the first decline after eight consecutive quarterly increases and was primarily the result of falling energy prices, which reduced the value of Canada's resource wealth. However, the value of natural resources was still at the second highest point on record as energy prices remained relatively elevated in the third quarter.
Financial sector supply of funds increases, mutual fund assets decline but are bolstered by a strong US dollar
Chart 7
Lending by the financial sector
Financial corporations delivered $103.9 billion of funds to the economy through financial market instruments in the third quarter. The supply of funds was primarily in the form of non-mortgage (+$58.2 billion) and mortgage (+$37.4 billion) loans. Chartered banks are the largest supplier of funds in the Canadian economy, accounting for $45.6 billion in non-mortgage loans and $25.1 billion in mortgage loans extended to borrowers.
Net redemptions of mutual fund shares totalled $20.0 billion in the third quarter, despite net inflows into money market mutual funds of $0.8 billion, as investors adjusted their investment strategies in response to volatile markets. Foreign investments held in mutual funds saw a 1.8% decline due to downward revaluations, but these losses could have been greater if not for a strong US dollar in the quarter.
Note to readers
Revisions
This release of the national balance sheet and financial flow accounts for the third quarter of 2022 includes revised estimates from the first quarter of 1990 to the second quarter of 2022. These data incorporate new and revised data, as well as updated data on seasonal trends. Additionally, conceptual, methodological, and statistical enhancements were incorporated and are summarized in: An overview of revisions to the Financial and Wealth Accounts, 1990 to 2022.
Data enhancements to the national balance sheet and financial flow accounts, such as the development of detailed counterparty information by sector, will be incorporated on an ongoing basis. To facilitate this initiative as well as others, it is necessary to extend the annual revision period (normally the previous three years) at the time of the third quarter release. With the third quarter release of the financial and wealth accounts, data will be revised back to the first quarter of 1990 to ensure a continuous time series.
Support measures by governments
Details on some of the more significant federal government COVID-19 support measures are now available in "Federal government COVID-19 response measures in the System of Macroeconomic Accounts, quarterly" (36-10-0687).
Financial and wealth accounts on a from-whom-to-whom basis: Selected financial instruments
The data visualization product "Financial accounts on a from-whom-to-whom basis, selected financial instruments" has been updated with data from the first quarter of 1990 to the third quarter of 2022.
Next release
Data on the national balance sheet and financial flow accounts for the fourth quarter of 2022 will be released on March 13, 2023.
Overview of the financial and wealth accounts
This release of the financial and wealth accounts comprises the National Balance Sheet Accounts (NBSA), the Financial Flow Accounts (FFA), and the other changes in assets account.
The NBSA are composed of the balance sheets of all sectors and subsectors of the economy. The main sectors are households, non-profit institutions serving households, financial corporations, non-financial corporations, government, and non-residents. The NBSA cover all national non-financial assets and all financial asset-liability claims outstanding in all sectors. To improve the interpretability of financial flows data, selected household borrowing series are available on a seasonally adjusted basis (table 38-10-0238-01). All other data are unadjusted for seasonal variation. For information on seasonal adjustment, see Seasonally adjusted data – Frequently asked questions.
The FFA articulate net lending or borrowing activity by sector by measuring financial transactions in the economy. The FFA arrive at a measure of net financial investment, which is the difference between transactions in financial assets and liabilities (for example, net purchases of securities less net issuances of securities). The FFA also provide the link between financial and non-financial activity in the economy, which ties estimates of saving and non-financial capital acquisition (for example, investment in new housing) to the underlying financial transactions.
While the FFA record changes in financial assets and liabilities between opening and closing balance sheets that are associated with transactions during the accounting period, the value of assets and liabilities held by an institution can also change for other reasons. These other types of changes, referred to as other economic flows, are recorded in the other changes in assets account.
There are two main components to this account. One is the other changes in the volume of assets account. This account includes changes in non-financial and financial assets and liabilities relating to the economic appearance and disappearance of assets, the effects of external events such as wars or catastrophes on the value of assets, and changes in the classification and structure of assets. The other main component is the revaluation account, showing holding gains or losses accruing to the owners of non-financial and financial assets and liabilities during the accounting period as a result of changes in market price valuations.
At present, only the aggregate other change in assets is available within the Canadian System of Macroeconomic Accounts; no details are available on the different components.
Definitions concerning financial indicators can be found in "Financial indicators from the National Balance Sheet Accounts" and in the Canadian System of Macroeconomic Accounts glossary.
Distributions of household economic accounts
The NBSA for the household sector is allocated across a number of socioeconomic dimensions as part of the distributions of household economic accounts. Data on wealth and its components by income quintile, age group, generation and region are available in tables 36-10-0660-01, 36-10-0661-01, 36-10-0664-01, and 36-10-0665-01.
The methodology for DHEA wealth estimates can be found in the article "Distributions of Household Economic Accounts, estimates of asset, liability and net worth distributions, 2010 to 2019: Technical methodology and quality report."
Products
The document, "An overview of revisions to the Financial and Wealth Accounts, 1990 to 2022," which is part of Latest Developments in the Canadian Economic Accounts (13-605-X), is now available.
The data visualization product "Financial accounts on a from-whom-to-whom basis, selected financial instruments," which is part of Statistics Canada – Data Visualization Products (71-607-X), is now available.
As a complement to this release, you can also consult the data visualization product "Distributions of Household Economic Accounts, Wealth: Interactive tool," which is part of Statistics Canada – Data Visualization Products (71-607-X).
As a complement to this release, you can also consult the data visualization product "Securities statistics," which is part of Statistics Canada – Data Visualization Products (71-607-X).
The Economic accounts statistics portal, accessible from the Subjects module of our website, features an up-to-date portrait of national and provincial economies and their structure.
The User Guide: Canadian System of Macroeconomic Accounts (13-606-G) is available.
The Methodological Guide: Canadian System of Macroeconomic Accounts (13-607-X) is available.
The Canada: Economic and Financial Data - International Monetary Fund's Special Data Dissemination Standard Plus (SDDS Plus) product (13-608-X) "Other Financial Corporations Survey," also known as "Assets and liabilities of other financial corporations by sector, market value, quarterly" (Table 36-10-0668-01), is available.
Contact information
For more information, or to enquire about the concepts, methods or data quality of this release, contact us (toll-free 1-800-263-1136; 514-283-8300; infostats@statcan.gc.ca) or Media Relations (statcan.mediahotline-ligneinfomedias.statcan@statcan.gc.ca).
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