According to Canada's housing agency, Canada Mortgage and Housing Corporation, the country has the highest debt level among the G7 countries. The analysis was published by CMHC's deputy chief economist, Aled ab Iorwerth. He noted that the country's household debt has been increasing inexorably due to rising home prices, making the country vulnerable to any global economic crisis. Canada's household debt at the time of the recession in 2008 was 80% of the size of the economy. It increased to 95% in 2010, and by 2021 debt exceeded its size. In comparison, household debt in the U.S. decreased from 100% of GDP in 2008 to around 75% in 2021. ab Iorwerth cautioned that this trend would continue if the country does not address its housing affordability challenges. Currently, around three-quarters of the household debt comes from mortgages in Canada. Though the Canadian financial system is stress-tested, ab Iorwerth warned job losses in an economy with high debt levels would make a global recession more severe. He added that the need to repay this debt would negatively impact the country's long-term growth prospects. ab Iorwerth said there are already early signs of consumers getting into financial trouble, unable to cope with the high-interest rates. According to a recent RBC report, home prices in Canada increased by 11.3% in April. Prices in the Toronto, Hamilton, and Kitchner-Waterloo regions raised by 2.4%, 5.4%, and 3.9%, respectively. The sales-to-new-listings ratio was at 70% in April, leading to a prediction that home prices would surge further. Amid the Canadian housing market's buying frenzy and surging prices, affordability has taken a nose dive. Oxford Economics said the market is the least affordable it's been in more than 40 years. To bridge this affordability gap, Canadians are turning to their parents and relatives to help. A survey by Zolo for its report showcasing how home buying has changed in the county revealed more than half (55%) received money from their parents or relatives to raise money for their down payment. 47% of homebuyers received money as a gift or inheritance for their down payment, and 24% reported using their partner's family's money for their home purchase. A report by CIBC in 2021 showed 9% of move-up buyers received help from their family members. The CIBC report showed 30% of first-time home buyers received an average gift of CA$ 82,000 from their parents.
Gifts from parents are a major factor in a majority of the transactions, said Jonathan Cooper, president of Macdonald Real Estate Group. He added that we are in the midst of an unprecedented transfer of wealth. A real estate broker from Toronto, Mike Majeski, told Bloomberg even people in their 40s are getting help from their parents. |
