The chief executive officer of the Canada Mortgage and Housing Corp. says foreign buyers may be playing a role in overvaluation in the Vancouver and Toronto housing markets and says the federal agency is seeking new data on real estate ownership.
"In Vancouver and Toronto, it is very possible that foreign buyers account for a substantial portion of the demand for pricier, luxury single-family homes," CMHC CEO Evan Siddall said in a panel discussion Tuesday.
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Foreign buyers may be contributing to an overvaluation of residential real estate, especially in the luxury segment, Siddall said. CMHC has said 11 of Canada's cities are seeing some level of real estate overvaluation.
Foreign owners also present a risk for the CMHC, which is responsible for keeping Canada's housing markets stable.
"While both domestic and foreign investment activity can be speculative, foreign investment may be more mobile and subject to capital flight. This would increase volatility in domestic housing markets," Siddall said.
He said CMHC needs a better understanding of the extent of foreign ownership in Canada and plans new studies to collect this data. Last year, it studied foreign ownership in the condo sector and found it was very low — just 2.4 per cent.
Siddall referred to a Sotheby's report that international buyers accounted for 40 per cent of total luxury home sales in Vancouver and 25 per cent in Toronto and to Vancouver urban planner Andy Yan's recent account of foreign activity in the Vancouver market, which some have criticized as racist.
He said much of the evidence is anecdotal or has questionable methodology, and says better data is needed.
CMHC has begun asking property managers to provide information on the number of condominium apartment units owned by people whose primary residence is outside of Canada. It also is looking for broader-based data from realtors and land registry offices.
Siddall also addressed concerns raised about the exposure of the federal government to mortgage risk if there is a major correction in the housing market.
He said CMHC has "stress-tested" its own financial health in a scenario like the 2008 U.S. housing market crash, when there was a 30 per cent decline in house prices and a five percentage point increase in unemployment.
That kind of scenario in Canada would result in almost in an eight-fold increase in insurance claim losses, from $1.7 billion to $13.2 billion over five years and CMHC would swing from a $7.5 billion profit to a $2.8 billion loss, Siddall said.
CMHC has a capital cushion sufficient to cope with that kind of downturn, Siddall said, though it is studying shifting some of the risk to mortgage lenders, such as banks, so the burden on the federal government is not as heavy.
The federal agency also has tested itself against other grim scenarios, including global economic deflation persisting for five years, an oil price below $35 US a barrel, and a magnitude 9.0 earthquake in Vancouver.
"The bottom line: it would take a very severe housing downturn and a big jump in unemployment rates, both persisting for a number of years, to start eroding our capital in a significant manner," Siddall said.