Looking for someone to blame for skyrocketing housing prices across Canada? Take a look in the mirror.
That is basically what research firm Capital Economics advised in a new report that puts the blame for rising real estate squarely on Canadians — their debt, and their banks.
"The massive surge in risky debt being taken on by Canadian households illustrates that the housing bubble can't be blamed on cash purchases by foreign investors," said economist Paul Ashworth in a report titled, "House Price Gains Fuelled by Increasingly High-Risk Mortgages."
"House prices have been boosted by domestic credit growth, fuelled by relaxed lending standards."
Condos along Vancouver's waterfront. (Photo: Getty Images)
In the report, Ashworth spared no words trying to convince people that Canada is in a housing bubble: "This is a bubble. A very big bubble. And it is going to end in tears."
And while he admitted the firm has been wrong about housing in the past (Capital Economics has been particularly pessimistic about real estate), he supported his claim by noting the growth of household credit is due to the low cost of taking on more debt.
"The decline in interest rates and interest servicing costs allowed households to expand their debt without increasing the proportion of their incomes needed to meet their overall debt service obligations," he said.
The report included a chart showing that household debt stood at around 165 per cent of disposable income in the first quarter of 2016.
The chart also showed that household net wealth is at a high — but Ashworth warned that "anybody taking comfort from that should remember the value of asset prices is variable while the value of debt is fixed."
In other words, your house might drop in value, but the amount of money you owe won't change.
But cheaper debt isn't the only reason why household credit has kept growing. Ashworth said it also has to do with banks increasing amortization periods on uninsured mortgages.
Almost 60 per cent of uninsured mortgages that were handed out in 2015 had periods of more than 25 years, according to the Bank of Canada.
(The Canada Mortgage Housing Corporation will only insure houses with 25-year amortizations.)
All of that helped him to conclude that it's Canadians, not foreign money, driving growth in the housing market.
Condos along Toronto's waterfront. (Photo: Vichie81/Getty Images)
Ashworth isn't the first to counter the idea that foreign money is driving up housing prices in Canadian markets such as Vancouver and Toronto.
But it comes despite a growing body of research indicating that the money driving these markets is coming from somewhere else.
Last year, Vancouver planner Andy Yan conducted a study showing that 66 per cent of homes on Vancouver's affluent west side were owned by people with non-anglicized Chinese names.
This suggested that they were recent arrivals to Canada, he said.
Meanwhile, a survey of 250 real estate advisors by Royal LePage last month saw 66 per cent of them say foreign buying had risen in the luxury home market between 2005 and 2015. More than half of those advisors said foreign buyers mostly came from China.
Data from the U.S. National Association of Realtors has shown that buyers from China made up 28.6 per cent of residential acquisition volume in America last year.
The average home purchase price among this group was $831,800, more than international buyers from any other country.
Much of the buying among purchasers from China has been concentrated in West Coast cities such as Los Angeles, San Francisco and Seattle, though it's also happening in New York.
But actually assessing the influence of international buyers on Canadian housing markets is difficult, because jurisdictions don't collect that data.
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