Household net worth dipped 0.6% in the second quarter as stock markets slumped, Statistics Canada said Monday. Economists expect rising household debt levels to crimp consumer spending in the months ahead.

StatsCan said that household net worth dropped $34 billion in the quarter to $5.95 trillion, marking the first decline since the first quarter of 2009, “largely reflecting the decline in North American stock markets.”

“Increases for some financial assets, especially deposits, were more than offset by declines in equities, foreign investment and life insurance and pension assets,” the government statistical agency says, noting that households’ equity holdings declined for both shares and mutual funds.

TD Economics says that the 6.2% decline in the S&P/TSX index, “accounted for weak asset growth in the quarter as assets highly tied to stock prices, such as life insurance, pensions, and shares fell 3%. This drop was largely offset by strong home price growth since the start of 2009, which continued to bolster real estate assets in the quarter. As such, total asset growth was flat.” On an annual basis, asset values were up 6.4%, it reports.

Notwithstanding this quarterly decline in net worth, RBC Economics points out that “the strong gains during the previous four quarters have enabled households to regain 94% of the cumulative $552 billion of net worth that was lost during the economic downturn.”

Household liabilities increased, too, driven by mortgages and consumer credit, StatsCan says. RBC says that the growth in liabilities exceeded the growth in both assets and net worth, pushing the household debt-to-asset ratio up to 19.9% and the debt-to-net worth ratio up to 24.9%, each matching all-time highs seen in the first quarter of 2009.

However, the ratio of household credit market debt-to-personal disposable income declined to 143.7%, its first decrease since the first quarter of 2006, StatsCan reports. The debt-service ratio also declined in the second quarter compared with the first quarter. But, TD says that the drop in these ratios was likely driven by temporary measures.

“Personal disposable income rose 15% annualized in the second quarter, reflecting a surge in tax refunds, in part due to the renovation tax credit and the first time homebuyers tax credit. Households took advantage of the money available to them through the credits, in combination with record low interest rates to invest in their homes,” TD says, adding that many then used the tax refunds to pay-off their debts related to spending on housing. And, it cautions that “this boost to income was short-term in nature and will fall out of the equation next quarter, and both the debt-to-income and the debt-service ratio is likely to continue rising.”

“The household balance sheet is expected to head down a bumpy road over the next few quarters,” TD concludes. “Stock prices have since recovered most of the losses experienced over the second quarter — but remain flat when compared to the beginning of 2010. Meanwhile, existing home prices have fallen 3.7% since April of 2010 and this will start to weigh on real assets. We expect asset growth to be tepid through the coming quarters.”

“On the other side of the equation, debt growth has yet to let up with strong growth over the first month of this quarter. As such, we anticipate that debt will continue to constrain household net worth growth in the coming quarters and the measures of indebtedness such as the debt-to-income, debt-to-assets and debt-to-net worth will likely continue to deteriorate in the coming months,” TD adds.

“Weak asset growth in combination with still strong liability growth will likely have households feeling buried under more debt than they ever have,” TD says. “Households will likely feel a need to constrain spending and repair the damage done to their balance sheets. As such, quarterly consumer spending growth is expected to remain in a range of 2.0-2.5% over the next year, well below the 3.5-4.0% growth registered over the last five years.”

RBC also foresees debt loads weighing on consumer spending. “Since the beginning of 2009, the gain in asset values, particularly in real estate, has been supported by the highly accommodative monetary policy; however, these gains have been accompanied by rising debt levels as well. While household debt growth is expected to moderate in the near term, reflecting the slowing in housing market activity in the face of rising interest rates, these household balance sheet pressures will limit, although not prevent, growth in consumer spending during 2011,” it says.