Young Canadian homeowners are disproportionately vulnerable to a housing correction, and more than 1 in 10 would owe more than they owned in the event of a modest or larger pullback in the market, according to a report.

The report, by the Canadian Centre for Policy Alternatives, was released Monday. The left-leaning think-tank urges governments to implement policies aimed at bringing down debt loads before its too late.

Policymakers have been warning for years about the dangers of high house prices and the debt loads they tend to generate. But the CCPA report is among the first to quantify how those debt loads are skewing disproportionately towards younger people, who often have no other assets than the house they borrowed so much to buy.

1 in 10 wiped out by 20% correction

Their debt loads make them even more vulnerable than the population at large to a housing correction.

The Organization for Economic Co-operation and Development (OECD) issued a warning Monday about the risk of correction, particularly in Toronto, which has a rapid pace of new condo development.

It pointed to high debt-to-income levels in Canada and urged tightening on mortgage lending in markets such as Toronto and Vancouver, where homes are expensive compared to incomes.

"In Ontario, and especially Toronto, economic activity has been relatively buoyant and demand by foreigners has been boosted by the falling Canadian dollar. That said, newly completed but unoccupied housing units have soared in Toronto, increasing the risk of a sharp market correction."

Central bank says houses overvalued

The Bank of Canada estimates Canadian house prices are currently 10 to 30 per cent overvalued, and some private-sector economists say the problem is even worse.

"Declines in real estate prices would have a strongly disproportional impact on young homeowners," CCPA economist David Macdonald said. "If, or more likely when, real estate prices fall, families in their 20s and 30s can expect to lose a substantial portion of their net worth, and could find themselves owing more than their house and other assets are worth."

He offered some crunched numbers to back up that contention.

The debt-to-income ratio for people in their thirties has almost doubled since 1999, hitting a new high of 4 to 1, the highest of any age group.

Young families hit hardest

If Canada sees a housing correction near the midpoint of the Bank of Canada's projections, younger families would be disproportionately hit by that:

- Families with people in their thirties would lose an average of $60,000, which represents 39 per cent of their net worth.

- 1 in 10 families with people in their thirties or younger (169,000 families across Canada) would have a negative net worth, meaning their debts are larger than their assets. Today, the CCPA says there are 44,000 families in this group who are under water even before any housing price correction.

- If the correction is larger, say something in the range of 30 per cent, the impact would be even greater, as 294,000 households or one in seven families would be underwater.

- People in their twenties would lose less in dollar terms, less than $40,000 each on average, but that figure would reduce their net worth by 45 per cent.

- Families headed by people in their forties and up would lose more in dollar terms to a housing correction because their houses tend to be larger and worth more. But with an average loss of $70,000 to $80,000, that only represents 23 per cent of their net worth because they tend to owe less, and they tend to have other assets beside their house.

Housing corrections tend to have a cascading impact on the rest of household finances because of the large amounts of leverage involved in buying a home. As a rule of thumb, every 10 per cent decline in house prices represents a loss of 20 per cent on the average person's net worth, Macdonald said.

"In cities with higher prices, like Toronto, Vancouver and Calgary, young families would likely see declines in net worth dramatically worse than the national average due to higher leverage," he said.

"A badly managed downturn in real estate prices could wipe out the wealth of a large number of Gen-Xers and Gen-Yers," he said. "We need to recognize that young families are the most likely group to be plunged underwater by a nasty housing correction."

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How do Vancouverites pay more for housing than they earn?



The homes around Vancouver’s W. 19th Avenue and Valley Drive are mostly comfortable one- and two-storey detached houses with tidy, compact lawns. The view from the sidewalk offers nothing unusual.

Yet a map created by a Vancouver mathematician using Statistics Canada figures suggests that almost half of the households in this unassuming West Coast neighbourhood pay more for their shelter than they earn.

In fact, about 45 per cent of residents in this neighbourhood report that their mortgage, taxes, utilities and fees or their rent exceeds their annual income. With statistics like that, you’d expect falling-down hovels inhabited by people living beyond their means or mansions inhabited by the fabulously wealthy. But the area’s not much different from nearby Trutch Street and W. 15th Avenue, where not a single household has shelter costs so out of sync with earnings.

The math doesn’t work. You can’t pay more than you’re making. The money has to come from somewhere.”
Jens von Bergmann

 It’s always been something of a mystery how people get by in Canada’s most expensive city, ranked up there with other global hot spots like Hong Kong, Sydney, Australia and Manhattan. This summer the eternally sizzling real-estate market has pushed the benchmark price of a detached home past the $1.1-million mark. But the map, produced by Jens von Bergmann using 2011 Census data, is even more puzzling. How can about 25,000 households—almost 10 per cent of Vancouver households—pay more for a roof over their heads than they make?

Answering the question is trickier than it first appears. 

“The math doesn’t work. You can’t pay more than you’re making. The money has to come from somewhere,” said von Bergmann, who runs the Vancouver-based software firm Mountain Math.

One possibility: It could be people living off of savings for the short-term, “when someone loses a job or is in between jobs,” von Bergmann said.

That guess makes sense. At the time of the 2011 Census, the 2008 global economic slowdown was still looming and provincial unemployment rate had jumped to 8.2 per cent. Housing costs have certainly risen faster than incomes. But Vancouver weathered the economic storm relatively well, so temporary job losses can’t be the whole story.


Students lucky enough to have their expenses covered by their parents could also contribute to the trend. But the neighbourhoods that seem the most out of whack are scattered all over the city, not necessarily close to universities or colleges where students would normally cluster. “You wouldn’t expect students to be in expensive neighbourhoods like some of these,” von Bergmann said.


While Vancouver is Canada’s wealthiest city (the average household net worth is $867,817), median family incomes are below the national average. So one pet theory is that wealthy immigrants come to the city to live off their savings and investments after making their money overseas. HAM or “Hot Asian Money” is frequently blamed for pushing the prices of Vancouver real estate beyond what local wage-earners can afford, so wealthy immigrants might also be playing havoc with the statistics. In Coal Harbour, an affluent waterfront neighbourhood of high-rise glass towers where many newcomers live, 37.8 per cent of residents report paying more for shelter than they earn.



“Vancouver’s a nice place to live. It’s got a mild climate and there are direct flights to Asia. If I were to ask myself where I’d want to live if I don’t have to work, Vancouver’s a good choice,” von Bergmann said.

Some experts find the data hard to swallow. The 2011 Census was the first that wasn’t mandatory, and the voluntary response rate in Vancouver was notably lower than in the rest of the country. Some neighbourhoods on the map are greyed out because Statistics Canada was not confident about the numbers or wanted to protect the privacy of the participants who could be easily identified because of the small numbers.

“I think the data is really noisy,” said Tsur Somerville, a professor and director of the UBC Centre for Urban Economics and Real Estate. “Because you can’t see what’s happening in individual households, it’s hard to tell a clear story.”


One clue that things are off: In most neighbourhoods, when you remove the people who say they’re spending more than they’re earning, most Vancouverites are putting 30 per cent or less of their income toward their housing, which is about right. Few households report being between the two, which is suspicious.


Somerville agrees that new Canadians and wealthy people—and perhaps especially wealthy new Canadians—may have thrown off the numbers for a few reasons. They possibly didn’t understand the questions or fail to take into account some of their revenue, including income from overseas.

Of course, some of this confusion may not be entirely accidental.

“There might be whole neighbourhoods where there’s undeclared income,” von Bergmann said.

Certainly the city’s supply of single-family homes is not growing, even though its population is. People will go to great lengths to get the house of their dreams.

“Independent of foreign wealth, you have more people, many of whom have more money chasing the same number or even a smaller number of single family houses,” Somerville said.

But it’s also true they can’t spend more than they actually have.


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  • A home for sale is seen in Toronto, March 11, 2014. REUTERS/Aaron Harris

    Reuters - A home for sale is seen in Toronto, March 11, 2014. REUTERS/Aaron Harris

By Alexandra Posadzki, The Canadian Press

TORONTO - Realtor group Re/Max says home prices soared in Toronto and Vancouver in the first quarter with some of the effects spilling over into nearby regions.

The average sale price of a home in Vancouver grew seven per cent year over year to $874,869, a figure that includes everything from condos to detached homes.

In the Greater Toronto Area, the average residential sale price grew eight per cent from a year ago to $594,827.

Gurinder Sandhu, executive vice-president at Re/Max Ontario Atlantic, says a growing number of Canadians who work in pricey Toronto and Vancouver are buying homes in nearby areas where they can get more for their money.

Victoria saw sales climb 23 per cent with average prices up two per cent to $569,070, while Barrie saw sales grow 11 per cent year-over-year as the average price gained six per cent to $365,201.

In the Hamilton-Burlington region, the average sale price increased by eight per cent to $443,706.
"Regions outside of Vancouver and Toronto, including Victoria, Hamilton-Burlington, Barrie, have all reported this spillover effect from Canada's highest priced regions," Sandhu said.

"These regions have seen more sales activity, as well as price gains, as buyers look to get more value for their money by expanding their boundaries. They're willing to go for a longer commute and get larger properties for the money that they spend."

In Toronto, more and more buyers are putting in offers on properties before they are even listed online, Sandhu said. Real estate agents are tapping into their networks to learn about places about to go on sale by word of mouth, in order to help clients secure purchases in a fiercely competitive market.

Price gains across the remainder of the country were more modest, in the low single-digit range, with a handful of regions registering slight declines.

The average sale price in Calgary slipped two per cent to $474,251, while in Regina, it fell six per cent to $308,355.

The number of single homebuyers has also been on the rise across the country, Sandhu said.

"This marks a shift in life milestones as previously home ownership often came after marriage," he said.

— Follow @alexposadzki on Twitter

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