Rising real estate values have made Canadians "house rich," but their spending habits may keep too many of them "cash poor." Canadian households currently carry about C$1.10 in debt for every dollar of disposable income, even though residential real estate continued to be the major contributor to growth in national wealth, according to Statistics Canada.

This federal agency uses very specific terminology in outlining the country's economic status:

• National wealth is measured by "economy-wide non-financial assets."

• National net worth is "the sum of non-financial assets (produced assets, land surrounding structures and agricultural land) in all sectors of the economy." It represents the sum of the net worth of persons, corporations and governments and can be expressed as national wealth less net foreign liabilities.

• National saving is the total savings of persons, corporations and governments. National saving and investment contribute to change in national net worth. The revaluation of assets and liabilities, through changes in share prices, interest rates, exchange rates and loan allowances, is also responsible for changes in national net worth.

• National balance sheet accounts are statements of the balance sheets of all sectors of the economy. These statements present the non-financial assets owned across the range of sectors and the outstanding financial claims.

A strong economic end to 2006 belied the fact that growth in national wealth slowed to 1.7 per cent, a pattern attributed to "the easing of economic activity, partly offset by sustained price increases for selected non-financial assets."

Strong gains in the value of Canadian and foreign equities, supported by continued growth in residential real estate values, drove household net worth up sharply -- almost 4 per cent -- in the final quarter. The value of housing continued to grow, accounting for the bulk of the increase in non-financial assets. New housing prices advanced 1.4 per cent in the fourth quarter of 2006.

On the down side, household mortgage and consumer credit debt also continued to increase, so that household debt outpaced personal disposable income. Don't be mislead by reported decreases or stabilization in the ratio of household debt to net worth. Debt is not declining and, until property is sold, real estate values are statistical "paper" evaluations. Only when there is a sale will that increase in wealth be realized and credited against debt. If the sale occurs after a drop in property value, debt may prevail.

Three-quarters of all respondents to the Canada Mortgage and Housing Corporation 2006 Mortgage Consumer Survey "indicated that their goal is to pay off their mortgage as quickly as possible." Reportedly, half stated that "they would use extra money to pay down their mortgage." Making the mortgage top priority may be the intention of many property owners, but the ease of credit card use can distract homeowners from this goal, especially when rising property values create the illusion of greater personal wealth.

The impact of strong real estate markets, fueled by historically-low interest rates, generates wealth in other areas of the economy, too. According to a 2006 Statistics Canada release, total revenues reported by real estate agents, brokers, appraisers and other real estate industries increased sharply in 2004, jumping 11.4 per cent to C$8.9 billion that year:

• This growth reflects an increase in sales and higher real estate prices. For example, Statistics Canada's national New Housing Price Index jumped almost 6 per cent during 2004, nearly four times the rate of inflation.

• Ontario continued to account for the bulk of the industry with 52.0 per cent of total revenue, followed by British Columbia with 19.0 per cent and Quebec with 13.4 per cent.

• These industries were dominated by the offices of real estate agents and brokers, which generated 88 per cent of the total revenue.

The recently-released 2006 annual balance sheet accounts stated that national net worth reached C$4.9 trillion by the end of the year, or C$150,500 per capita. National net worth had expanded by C$131 billion in the fourth quarter, up 2.7 per cent and just off the pace of growth set in the third, in reaction to a significant decline in net foreign indebtedness. On a year-over-year basis, national net worth jumped almost 4 per cent over growth in 2005. A slackening in the economy was offset "by sustained price increases for selected non-financial assets." Statistics Canada attributes this gain to sustained strong investment, sharp rises in foreign equity prices and a depreciating Canadian dollar.

National wealth grew almost 7 per cent in 2006 with residential real estate assets continuing to make the greatest contribution to the increased value of non-financial assets, accounting for over 70 per cent of the change.

How much of your wealth is "on paper" -- unrealized capital gain -- vulnerable to economic fluctuations?

Sources: Statistics Canada and Canada Mortgage and Housing Corporation.

Published: March 20, 2007

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Futurist and Strategist PJ Wade is "The Catalyst" - intent on "Challenging The Best to Become Even Better." PJ earned this title by translating the dynamic impact of Boomers and their multi-generation families into relevant insights that start people thinking and taking action—in business and in life. Author of 8 books and more than 1800 published articles, PJ encourages individuals to become their own futurist. PJ writes and speaks about the insight, knowledge and solid decision-making skills that professionals and their clients need to live and work in this vortex of change. For instance, since PJ knows that home is headquarters for the new decades-long "unretirement," she wrote the popular book "Reverse Mortgages: Best Friend, Worst Enemy...Your Choice!", which is filled with suggestions and cautions on protecting, building and managing home equity. Her new business book, "What's Your Point?: Cut The Crap, Hit The Mark & Stick!" will be published in 2012. As The Catalyst, PJ provides strategic communication, client appreciation and advanced education services to the financial, tourism, lifestyle and service sectors - and the clients they serve. A frequently-quoted financial and business commentator, PJ is a thought-provoking strategic speaker who offers practical, real-life suggestions on leaving "the box" behind and embracing Forward Thinking - a talent she regularly demonstrates in this column. For more on keynotes, blogs, books and information on a range of 21st-Century topics, visit TheCatalyst.com.