When it comes to housing wealth, Canadians have been kicking the pants off their southern neighbours for at least two decades.
That might not come as a shock these days, but an analysis of house price indexes by real estate blog Better Dwelling puts some rather eye-opening numbers to the phenomenon.
They compared Canada’s three largest metro areas — Toronto, Montreal and Vancouver — to four U.S. cities Canadians like to compare themselves to, and which also have dynamic economies: New York, Los Angeles, San Francisco and Seattle.
What they found was that the weakest of the Canadian markets beat even the strongest of the U.S. markets on house price growth since January, 2001.
That weakest Canadian market would be Montreal, which has seen nothing close to the house price spikes seen in Toronto and Vancouver. Despite that, Montreal beat the fastest-growing U.S. market, Los Angeles, by 5.4 per cent.
It beat New York by a whopping 84 per cent. And despite Montreal prices rising 27 per cent more than Seattle prices, Seattle appears on lists of markets prone to a housing bubble and Montreal does not, Better Dwelling noted.
Watch: Is Canada’s economy addicted to money laundering? Story continues below.
Still, Montreal’s growth is peanuts compared to Vancouver, where prices grew 75 per cent more than L.A. prices since the start of 2001. Compared to New York, Vancouver prices are up 207 per cent.
One thing to understand about these numbers is that they pick a random point — the start of the century — against which to compare house price growth.
Any other point would have been equally random, but might show a different outcome. If, hypothetically, New York house prices rose much faster in the 1990s than Canadian house prices, then measuring from 1990 would give you a very different picture.
Nonetheless, the numbers do tell us that Canadians have made much better returns on their homes than Americans have since the start of the century. But there is a downside to Canada’s success, and that is debt.
Since the U.S.’s housing bubble burst a little over a decade ago, American households have deleveraged, slowly reducing their total debt holdings.
That’s not the case in Canada, where the ratio of household debt to disposable income hit a record high of 178 per cent in the first quarter of this year.
That’s higher than U.S. debt before the bubble burst. The U.S. and Canada measure household debt differently, but when adjusted to U.S. terms, Canadian household debt is now higher than Americans’ at the peak of the U.S. bubble.
It’s charts like the one above — showing Canadian household debt now exceeding U.S. debt at its peak — that have convinced the International Monetary Fund that the U.S. and Canada have traded places on housing market risk.
And debt is spreading to more households. In 1999, two-thirds of Canadian families carried debt. By 2012, it was three-quarters, according to a recent report from financial services firm Edward Jones.
“To be clear, risks are not elevated for all Canadian families,” the report stated.
“We are most concerned about certain segments of the Canadian economy where debt levels have risen the most, including young families, families with adult children living at home, and households in the Prairie provinces.”
Moving in the right direction
But there is some good news here: Since governments started putting in place various policies to cool house prices (like foreign buyers’ taxes in the Toronto and Vancouver areas, and the mortgage stress test) debt growth has slowed way down, as has house price growth in most markets.
The result is that while things are looking a little scary in the Vancouver housing market, our whole financial system is looking a bit less scary. The Bank for International Settlements had for years named Canada a top candidate for a banking crisis, thanks to excess debt, but its most recent assessment showed the risk coming down considerably.
So maybe we can get a handle on this situation, before it gets any more out of hand. At a minimum, try not to get dragged into a bidding war next time you’re in the market for a house. Our pocketbooks can’t handle any more real estate enthusiasm.
CORRECTION:An earlier version of this article stated that three-quarters of Canadian families carried debt in 2018. In fact, it had reached that level by 2012.