The epidemic resulted in significant changes to net wealth, with home values alone increasing by 52% and the value of household equity in real estate rising by almost $2 trillion. Overall, net worth increased by $3.8 trillion between Q4 2019 and Q1 2022, which aided in boosting consumer spending as pandemic lockdowns started to loosen.
But with the declines in home prices and financial markets this year, Janzen and Freestone forecast a 41% ($1.6 trillion) reversal in those net worth gains, from peak to trough.
“While that still won’t retrace all of our pandemic gains, it will nevertheless create a negative ‘wealth effect’ that will drag on consumer spending, even as labour markets soften,” they said.
And while the pandemic spending boom was driven by discretionary or non-essential expenditure on things like house improvements and furniture, Canadians will prioritize essentials like debt, groceries, and gas as interest rates increase and price pressures continue.
According to RBC Cardholder data, Canadian spending hit a plateau in the summer after rising in the spring as a result of the lockdowns caused by Omicron.
