Viewers of a recent segment on MSNBC’s Morning Joe could be forgiven for thinking Canadians buy their homes with cold hard cash, steering clear of mortgages in favour of working three jobs to save up the money.
That, um, exaggerated view of Canadian finances is what appears to have come out of a discussion about why Canada’s economy has been doing better than the U.S.’s.
To his credit, Morning Joe regular Mike Barnicle did correctly identify Parry Sound, Ontario, as Bobby Orr’s hometown. Beyond that, the facts about Canada got a little murky.
Discussing a recent study that found Canadians’ net worth is now higher than Americans’, host Joe Scarborough brought up what he called an “unbelievable” statistic -- that “half of Canadians do not even have a mortgage.”
Evidently stunned by the statistic, Barnicle declared that attitudes towards homeownership are “the biggest difference between our cultures.”
“There’s a difference in the Canadian culture of saving and the American culture of spending,” Scarborough said.
He was likely referring to recent data showing that 47.3 per cent of Canadian homeowners have no mortgage, while only 32.1 per cent of U.S. homeowners are mortgage-free.
And while that statistic can suggest any number of things -- that Canadians pay off their mortgages faster, or that Americans take out loans against their home equity more than Canadians, for instance -- the assumption on Morning Joe appeared to be that Canadians buy their homes with cash.
“Canadians spend what they have, what they’ve earned, what they got from their parents or siblings, or whoever helps to contribute. … People have two jobs, three jobs,” said Miles Nadal, CEO of Toronto-based MDC Partners. “It’s the Protestant ethic of only buying that which you can afford.”
Really? Canadians are nearly as leveraged today as Americans were before the housing bubble burst. Household debt here rose to 153 per cent of average income last year, just seven percentage points shy of the 160 per cent U.S. households were carrying when the real estate market came tumbling down. Just last week, Standard & Poor’s cut its outlook on Canadian banks, based on its assessment that both house prices and household debt levels are too high.
The pundits also heaped praise on Canada’s amazingly high savings rate, which sadly turns out not to exist.
“American savings are ... up 10 per cent in July, to 4.4. per cent,” Nadal said. “Canadians save at a rate of about 8 per cent. They’re far more conservative.”
It’s true that at one time, Canadians saved considerably more of their income than Americans. But Canada’s savings rate fell below that of the United States a few years back, and this recent chart from the Globe and Mail indicates it has stayed that way. Canadians now save just 3.5 per cent of their incomes.
At one point Nadal also asserts that Canadians are “far more fiscally conservative,” citing as proof the requirement of a 25-per-cent down payment on a mortgage. This is technically true, but CMHC loan insurance means that Canadians can buy a house with as little as 5 per cent down.
So what did they get right? Few would disagree with Nadal’s assertion that Canadians “have been blessed by the ovarian lottery -- they were born in a physical location that’s rich in natural gas and oil and water and pulp and paper, et cetera.”
“Smarter banking,” Barnicle suggested. “Never had the housing bubble.”
Smarter banking, perhaps, but the jury’s still out on the housing bubble thing.
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