Much of this buying spree has been inspired by a real estate boom in Canada, said the Canadian Imperial Bank of Commerce report, authored by Deputy Chief Economist Benjamin Tal.
Canadaâ€™s savings rate is now 4.2%, below the U.S. rate of 5.8%, the largest gap on record. Canadians used to save more than their neighbors to the south, but thatâ€™s changed in the past couple of years as the housing markets have gone in opposite directions.
â€œWith the average house price in Canada more than doubling since 1997, many households have been saving indirectly or passively via the increase in their home equity, and thus felt less pressured to save from their current income,â€ said Tal in his report.
Unlike stock market gains, gains in housing equity feel secure to owners, he said, thus eliminating the urge to save. That will change if housing prices stop rising, however.
â€œWhile we do not see a major correction, the projected flat housing market will strip households of their primary means of passive savings,â€ said Tal. â€œAnd as is currently the case in the U.S., this process will bring back old-fashioned active savings by way of actually putting money aside.â€
But Tal said it doesnâ€™t take much to return the savings rate to 6% in Canada. Achieving that would take just a 10% cut in the annual average of $11,000 spent individually in Canada on clothing, personal care, recreation, games of chance, tobacco, and alcohol.
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