Investment continues to fuel imbalances in the largest housing markets

Investment continues to fuel imbalances in the largest housing markets

Investment continues to fuel imbalances in the largest housing markets

Investor activity remains one of the major factors to blame for “pronounced imbalances” in B.C. and Ontario, according to the Bank of Canada’s Financial System Review released late last week.

This is despite overall housing imbalances having diminished, with resale activity across Canada falling by around 20% from the peak seen in 2016.

“House price growth has also slowed markedly. For the first time since 2013, it is running below income growth,” the report explained, but quickly added that “[investors] remain an important vulnerability.

“Froth from rising expectations of house price growth has declined in housing markets in the Toronto and Vancouver areas over the past two years. While the Toronto market appears to be stabilizing, prices and resale activity continue to decline in Vancouver.”

Aside from increased speculation and purchases by foreigners, other motivating elements were sustained low supply, low interest rates, robust employment, and strong immigration growth.

The trend is also spurring higher debt levels, with especially in-demand assets and property types further going up in value and associated expenses.

“Households in British Columbia and Ontario have the highest median net worth, and their net worth is more concentrated in housing. These provinces also have the most pronounced imbalances in their housing markets, partially due to investor activity, and are the most indebted as measured by the ratio of household debt to income.”

Around 11% of households nationwide now have a debt-to-income ratio greater than 350%. This cohort accounted for two-fifths of Canada’s outstanding household debt as of 2019, with the share having doubled from its 1999 level.

“Most of this debt has been used to purchase assets—especially housing, which has increased in value. This strengthened household balance sheets, boosting the median household net worth from $148,000 in 1999 to $296,000 in 2016, in constant 2016 dollars, based on data from Statistics Canada’s Survey of Financial Security.”