I've encountered many blog posts, newspaper articles, and sell-side reports of this vein and would like to comment on their main points.
- not the bogeyman
- usually putting down significant down payments
- if renting the space, then the issue should be the appropriate rental financing/regulatory regime, not a foreign buyer issue per se
- else if they are using the space for their kids/family who are living in Canada and may be Canadians themselves, then what's the problem here?
- else if not renting the space, and not using for family, then they're likely quite wealthy and see real estate as a place to store a lot of CAD (what other asset class would you have them invest in? and if the predicted stampede of capital occurs, which currency is going to act as safe haven vs CAD... (keeping in mind that the wealthy investor probably already holds lots of USD, HKD, JPY, EUR, GBP)?)
Household debt-to-income: Canada vs U.S.
- the shape of the chart is accurate but Canadian and U.S. stats are not directly comparable
- Canadians pay higher taxes so, all else being equal, you'd expect the Canadian ratio to be higher
- households are less sensitive to health related shocks due to universal insurance
- a corporate obligor with a 1.6X debt/EBITDA ratio would probably be investment grade rated
- I'm very sympathetic to the view that we're in bubble territory
- but the market is the market
- there are explanations for the very extreme cases such as Toronto and Vancouver especially taking into account international comps
Frequency of defaults on mortgages
- don't panic until employment is a problem
Loss given default on mortgages
- overall LTVs are about 54% for CMHC as at 2014 Q3 (should be about similar for the big 5 banks)
- high ratio mortgages, and any conventional mortgages securitized through the NHA MBS program are insured by CMHC or the two private insurers
- and no, CMHC insurance is not a bail-out of banks, they have made billions of dollars for their shareholder (the Government of Canada) and if some black swan event wipes out a year or two of profits and a portion of the capital base (which is over 150% of regulatory minimums) then I think we call that a success