"It was the best of times, it was the worst of times."

This quote from Dicken’s famous novel, The Tale of Two Cities, best describes developments in the Canadian economy this past year. We are all too familiar with the Canadian data regarding the nearly millions of workers still without jobs and the thousands of small and median sized businesses either permanently shut down or barely surviving even with government assistance. For these individuals it is the “worst of times.” But for the nation as a whole, it has been the “best of times.”

Canada released data on the nation’s balance sheet for the first quarter of 2021, and the results might very well startle many readers. To wit:

National net worth, the sum of national wealth and Canada's net foreign asset position, jumped by over $1 trillion (C$1,070.9 billion) or 7.7% to reach C$14,965.7 billion at the end of the first quarter. This unparalleled rise was fueled by record growth in national wealth, coupled with a modest increase in Canada's net foreign asset position. On a per capita basis, national net worth rose from C$365,184 to C$392,496.

Canadians may not all feel richer, given the stresses of a series of lockdowns and re-openings that have been highly disruptive to the normal workings of the economy. Yet, drilling down into the sources of this increase in wealth, we see that:

• Real estate values rose an unprecedented 9.4% in the quarter, a third consecutive quarter of strong growth. At the same time, household mortgage borrowing slowed, hence the rise in home equity values.
• Following a strong 2020, the Toronto Stock Exchange Composite Index was up 7.3% in the quarter; Canadians who have holdings in foreign equity markets saw their portfolios increase by 5.8% (S&P 500). 
• Canada's net international investment position continued its upward trend in the first quarter to a new record level of C$1,390.5 billion.
• Household incomes were augmented by higher wages, salaries, and significant government transfers to offset the loss of jobs and business income. As a result, the household savings rate soared and consumption slackened.
• Credit card balances shrunk as consumers were able to use higher cash balances to maintain their living standards.
• The net worth of Canadian households increased by a robust 6 % to C$13,700 billion in the first quarter. Since the start of the pandemic early in 2020, household wealth has grown by over C$2 trillion.                   

Canadian National Wealth

Much of this increased wealth has been generated from the surge in home prices, and many observers are issuing warnings about the lack of sustainability of personal real estate values. Bear in mind that home prices have increased, on average, by 8.7% annually over the past decade. According to the national statistical agency, owner equity in real estate actually climbed to 77% in the first quarter of 2021, supporting the assertion that real estate borrowing does not pose a systemic risk. 

Moreover, there has been a shift in the composition of household debt in which mortgage debt increases while non-mortgage loans decline. Overall debt, as measured against total consumer assets, is at the lowest level in nearly 20 years. So, how would one characterize these times --- the worst or the best?