News from the Canadian Centre for Policy Alternatives
Ottawa, Ontario, November 2015 —Young homeowners would be hardest hit by a correction in Canada’s housing market, says a study released today by the Canadian Centre for Policy Alternatives (CCPA).
The study, by CCPA Senior Economist David Macdonald, assesses the impact of a housing market correction on the net worth of Canadian families and finds a 20% decline in real estate prices would leave 169,000 families under 40 underwater, with more debts than assets.
“Declines in real estate prices would have a strongly disproportional impact on young homeowners,” says Macdonald. “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.”
Canadian families are taking on disconcerting levels of debt to finance their real estate dreams. The average debt-to-income ratio of thirtysomethings has almost doubled since 1999, hitting a new high of 4:1, the highest of any age group.
According to the study, a 20% decline in real estate prices would result in:
- Families in their 30s seeing an average dollar loss of $60,000, or a loss of 39% of their net worth.
- 169,000—or 1 in 10—home-owning families under 40 having negative net worth (debts greater than assets). A 30% decline in real estate prices would leave 294,000 young families underwater, equivalent to 1 in 7 of those families.
- Middle-aged families (in their 40s, 50s, and 60s) would see their net worth fall, on average, by $70,000-$80,000, resulting in a decline in net worth of 23% or less given their lower debt levels and broader asset diversification.
“As a rule of thumb, young families lose 20% of their net worth for every 10% decline in real estate values,” says Macdonald. “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.”
The study concludes with an evaluation of programs that were used in the U.S. after their real estate crisis and makes recommendations for programs that could be useful in Canada in the event of a real estate correction here.
The Young and the Leveraged: Assessing the Impact of a Housing Market Correction on Canada’s Homeowners is available on the CCPA website: http://policyalternatives.ca
About the Canadian Centre for Policy Alternatives – The Canadian Centre for Policy Alternatives is an independent, non-partisan research institute concerned with issues of social, economic and environmental justice. Founded in 1980, the CCPA is one of Canada’s leading progressive voices in public policy debates. We have a National Office in Ottawa, and provincial offices in British Columbia, Saskatchewan, Manitoba, Ontario, and Nova Scotia. – See more at: https://www.policyalternatives.ca/offices#sthash.4NZuSqJb.dpuf
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Niagara At Large 
t was just a matter of time before the Bubble burst and the effect will be devastating to home buyers who bought in the last few years…Our glorious ex-leader, HARPER once said we in Canada were protected by his brilliant handling of the economy.,..Once again the rich get richer and those who who believed get stuck with the debt….and the building continues unabated.
Could NOT HAPPEN IN CANADA!!!!! Thanks to MR HARPER and you CONSERVATIVE SHEEP????
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All one has to do is read the mainline papers such as the Globe and Mail, the National Post, the Toronto Star, to know that both Vancouver and Toronto are completely out of reach for younger buyers. Our daughter smartly sold her expensive condo loft in West Queen West ( The area recently noted as the place to live in T.O.) for a lot of money, and is now renting with her boyfriend in The Junction. Her condo sale was listed in Toronto Life as “The Sale of the Week”. Great rental place they have. Other friends I have whose children cannot afford to buy in Toronto, also rent.
There comes a time when Seniors like me realize how good we had it…. leaving our children and grandchildren with huge debts and a social justice system that may become unattainable.
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It’s ba-a-a-ad to keep griping about Mr. Harper and the old regime. Why not find a new hobby, like keeping a gauge on the current government’s handling of issues near and dear to your heart? It should be thumbs-up all the way now, with Liberal majorities federally and in Ontario at the same time. But, hey, it could be a mild winter and that’s the ex-PM’s fault too. So let’s print some more money and make sure the rich get richer.
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