Since mid-2001, the value of household real estate assets has increased a stellar 27% nationally, roughly double the 13% rise in the value of household financial assets, according to the a report, released today by Scotia Economics.

Household net worth has soared 17%, to an average of $136,500 per capita, over the same period

“Rising home ownership rates, combined with appreciating home prices, have been the dominant driver of Canadian household wealth gains over the past three years,” said Adrienne Warren, senior economist, Scotia Economics, in a release.

Home equity has traditionally been the single largest component of net wealth for most households, but its share of the average household investment portfolio steadily declined through the 1990s as stock market returns outpaced gains in real estate prices. “This trend has now reversed, with real estate assets becoming an increasingly important component of household net worth and non-registered savings,” adds Warren.

According to the report, the rise in real estate wealth is an important factor driving consumer spending gains, especially on ‘big-ticket’ durables. Gains in real estate wealth typically have a more powerful impact on consumer spending than do equity gains, as they are perceived as more permanent, and real estate is more widely held.

“A similar picture of real estate-driven wealth gains can been seen in the United States,” said Warren. “Compared with their American counterparts, however, homeowner equity is much higher in Canada – and rising.”

Real estate equity (assets minus mortgages) represented 70% of Canadian household real estate assets in mid-2004, versus only 55% in the United States. This appears to reflect different approaches to balance sheet restructuring, as well as the deductibility of U.S. mortgage interest payments. U.S. households have focused more on paying down higher cost consumer debt in recent years, in part through mortgage refinancing and home equity extraction.

The report also includes a detailed statistical and graphical compendium of the latest trends in North American residential and non-residential real estate markets.

Real Estate Trends
http://www.scotiacapital.com/English/bns_econ/retrends.pdf