Photo: Michael Pardo/Flickr
New charts from two of Canada’s biggest banks reveal at least two different ways to look at the role foreign investment is playing in hot Canadian real estate markets.
Diana Petramala, TD Bank’s real estate economist, has zeroed in on currency and deposits held by foreigners in Canadian banks.
“The idea is that money has to flow into the economy somehow,” says Petramala, going over the research behind the new TD chart with BuzzBuzzHome News.
While comparing Toronto and Vancouver home sales in dollars with the total sum of currency and deposits that foreigners are holding in Canadian banks, the economist noticed a trend.
“Housing has basically spiked just as much as you’ve seen foreign inflows of cash into the economy [increase],” says Petramala.
“Holding of currency and deposits have almost doubled since 2013, and so has total spending on housing,” she adds in a followup email.
Petramala says this is a “good indicator” that “potentially a lot of it is foreign money” going towards funding home purchases in Canada’s hottest housing markets.
Chart: TD Economics
BMO Economics recently released its own chart addressing the foreign buying of Canadian residential real estate as well.
In a note published last week, BMO Chief Economist Douglas Porter contrasts Canadian home price appreciation with overall household credit growth.
Porter illustrates how home price gains generally track in line with household credit growth as people take out mortgages to finance their home purchases, noting the exception of “wild swings” recorded during the Great Recession.
He then calls attention to the past year, during which time Canadian home prices have skyrocketed (by 10 per cent year-over-year, according to Teranet-National Bank’s index for June, no less) and credit growth has “barely budged.”
The takeaway? “Something besides domestic borrowing has clearly fanned the flames,” says Porter. “We will simply note the anecdotal evidence that many foreign buyers do not borrow to buy,” he adds.
Porter concedes “the accompanying chart doesn’t fully prove our point” and acknowledges all analysts aren’t on the same page.
Chart: BMO Economics
After the release of the latest Teranet-National Bank index that Porter based his chart on, Paul Ashworth, Capital Economics’ chief economist for North America, strongly questioned the influence of foreign cash.
“The usual suspects will claim that these price gains are somehow justified by demographics or foreign cash buyers. This is complete nonsense,” he wrote.
Demographics take a long time — decades, even — to evolve, he says, while citing a lack of hard evidence supporting the foreign-buyers argument.
A recent BC government study found foreign buyers were responsible for 5 per cent of residential sales in Metro Vancouver through a three-week period, the CBC reports.
Quoting Mike de Jong, BC’s finance minister, who presented this data recently, Porter bolsters his argument that foreign buyers are driving prices up in Toronto and Vancouver, where June benchmark prices (looking at the broader surrounding areas, too) are up 16 per cent and 32 per cent year-over-year, respectively.
“Well, the BC Finance Minister himself just said last week on the influence of foreign buying: ‘It is actual, it is factual and it is beyond conjecture,” Porter says, reacting to Ashworth’s commentary.
“But, pointing that out would be far beneath us,” he quips.