Canadian household net worth rose 1.3% to $6.0 trillion in the first quarter, Statistics Canada reported on Monday.

The reading marks the fourth consecutive quarterly improvement in household net worth and represents a 96% recovery of the net worth lost during the recent economic downturn, according to RBC Economics.

Increases in both financial and non-financial assets drove the improvement in household balance sheets, RBC says, although a rise in financial asset values was the bigger factor. It reports that with the S&P/TSX composite index up 2.5% in the quarter, the value of household financial assets (which include equities, mutual funds and pension assets) rose by 1.8% ($71.3 billion).

Also, the Canadian housing market continued to show strength in the first quarter, pushing the value of non-financial assets (of which real estate holdings make up 85.5%) up 0.8% ($24.9 billion) compared to the previous quarter.

However, household liabilities grew at a faster rate, rising 1.5% ($21.7 billion) in the first quarter, to $1.4 trillion. RBC reports this was led by a $16.4 billion increase in mortgage debt. It also notes that consumer credit growth eased to $3.9 billion (from $8.3 billion in the previous quarter) reflecting a slowdown in demand for durable goods.

The household debt-to-net worth ratio remained at 24.4% for the third consecutive quarter, slightly below the all-time high of 24.9% seen in the first quarter of 2009, RBC adds. But it also points out that the household debt-to-personal disposable income ratio edged up to a new record of 148.9% from 147.0% in the final quarter of 2009.

“Low interest rates have encouraged the expansion of household borrowings that has led to strengthening in demand and asset prices, particularly in housing,” RBC says, and the strong economic recovery has caused the Bank of Canada to begin easing this very stimulative monetary policy. “Because economic activity is expected to continue to improve, the Bank will likely continue to withdraw monetary stimulus, although we expect the pace of tightening to remain moderate with the policy rate expected to finish 2010 at a still stimulative 1.50%,” it says.

IE