Focus on foreign buyers overlooks source of most housing demand in Canada
The Canada Mortgage and Housing Corporation (CMHC), partnering with Statistics Canada, recently released much-awaited data tracking the share of home ownership by non-residents (individuals whose principal dwelling is outside of Canada) in major metropolitan areas. In the Greater Toronto Area, non-residents represented 3.4 per cent of all residential properties (accounting for 3.0 per cent of total residential property value). In Metro Vancouver, non-residents owned 4.8 per cent of residential properties, representing at 5.1 per cent of total residential property value.
Regardless of these numbers’ ability to accurately capture this phenomenon, or the disparities between individual municipalities within metro areas, they suggest a milder effect than some might have thought. More importantly, they remind us of where the vast majority of housing demand comes from: right here in Canada.
Not only do locals (unsurprisingly) represent the bulk of housing demand, but these locals can qualify for far larger mortgages than they used to. According to recent Fraser Institute research, falling interest rates enabled a 53 per cent increase in mortgage borrowing power (maximum eligible mortgage size) between 2000 and 2016 for the same monthly payment. Basically, a family earning the average Canadian income in 2000 could qualify for just shy of $100,000 more by borrowing at 2016 average interest rates (2.7 per cent). When combined with rising incomes, historically low interest rates have enabled families to more than double their mortgage borrowing power since 2000.
Whether recent and upcoming changes to mortgage qualification rules dampen mortgage borrowing power—and to what extent—remains to be seen. Nevertheless, the overall trend of falling interest rates has held for decades (does anyone remember the double-digit mortgage interest rates of the 1980s?), and has certainly impacted demand for housing.
In the context of rapidly rising home prices over the past decade, it’s important not to lose sight of the role of interest rates as a driver of domestic demand. More mortgage “firepower” for homebuyers means the ability to bid up properties for sale. This is key in highly desirable housing markets such as Toronto and Vancouver because barring a significant rapid increase in housing supply, those cities are the most likely to see historically cheap borrowing translate into higher home prices.
So, rather than focusing on a single slice of housing demand (non-residents), it’s helpful to remember that the vast majority of housing demand is local, and that Canadians can qualify for far larger mortgages than they could in the past.
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