Canada’s property boom has increased household wealth, but real estate purchases have left immigrants with a bigger debt burden than residents who were born here.
A new study from Statistics Canada shows that immigrants owed significantly more than their Canadian counterparts, leaving newcomers more vulnerable to higher interest rates and an economic slowdown.
Since the Great Recession, Canadians have been borrowing heavily and pushing household debt to levels that are seen as a risk to the financial system over all.
The study looked at household assets and debts in 1999, 2005, 2012 and 2016, the most recently available data. It shows the debt-to-income measurement had climbed for both immigrant and Canadian-born families, but the level was substantially higher for immigrants.
The debt-to-income ratio for established immigrant families hit 217 per cent in 2016 because of large mortgages, according to Statscan data. In comparison, older Canadian-born families had a debt-to-income ratio of 132 per cent.
“We know that when it comes to new immigrants, many of them see real estate as an important factor. They would like to own something physical. This means that they are willing to take large mortgages,” said Benjamin Tal, deputy chief economist with CIBC. “The attachment to real estate is very different. There is an urgency to get something after arriving or establishing themselves,” he said.
For those who were in the country for less than a decade, the debt-to-income ratio was about 250 per cent, and for those who had been in the country for 10-to-19 years, the ratio was nearly 300 per cent.
When mortgage loans were excluded, immigrants and Canadian-born households had similar levels of indebtedness.
A higher debt-to-income ratio does not necessarily mean that immigrants bought pricier homes. But it could mean that they had smaller down payments and/or lower incomes.
Immigrants “probably have less help from parents, so they probably have a bigger mortgage,” Mr. Tal said.
The study shows the importance of real estate for immigrants through home ownership rates and composition of wealth.
Established immigrants held about half of their wealth in real estate. (An established immigrant is defined as someone who has been in the country for a minimum of two decades and where the primary income earner was between the ages of 45 and 64.) The same age cohort for those born in Canada held about one-third of their wealth in real estate.
It is the same story for more recent immigrants. Those who have been in the country for less than two decades held a minimum of 60 per cent of their wealth in primary and secondary residences. Meanwhile, those born in Canada held less than 40 per cent of their wealth in real estate.
The study shows that when immigrants first move to Canada, they had a lower level of home ownership than those born in Canada. But after living in the country for more than 17 years, immigrant home ownership rates surpassed Canadian-born residents.
“Even though they have a lower rate, they eventually catch up relative to Canadian born. The same is not true regarding the percentage of families that have a registered pension plan,” said René Morissette, author of the study and senior economist with Statscan.
The study shows that in 2016, 47 per cent of immigrant families had pension plans versus 61 per cent for Canadian-born people.
“It could be an economic response to being in jobs with low coverage and saying we will adjust by investing more in terms of housing,” Mr. Morissette said.
Real estate has helped increase wealth for immigrants and their Canadian-born peers. The average wealth of established immigrant families climbed to $1.06-million in 2016 from $625,000 in 1999. Whereas, the average wealth for the comparable born-in-Canada cohort increased to $979,000 from $519,000.
Over that time period, the average selling price of a house in Canada rose to $485,195 from $214,296, according to data from the Canadian Real Estate Association.
All amounts are adjusted to 2016 dollars.
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