Canada's Housing Affordability Illusion and Rising Insolvency Threat

Canada's foreign investment surge is not as confident as it seems. The country saw its highest level of foreign investment since 2022, reaching $256 billion in May. However, a BMO report reveals that this influx targeted bonds, with 58.4% being government debt, rather than equities. The Bank of Canada had previously warned about the systemic threat posed by this type of purchasing.

Housing affordability improved for the tenth consecutive quarter, but this is misleading. According to National Bank data, a mortgage on a typical home would require 51% of the median household income. In essence, buyers' incomes need almost double the current median income to qualify for such a mortgage.

The median income in Canada stalled at $46,300 in 2024, unchanged after inflation from 2023. Real (inflation-adjusted) incomes peaked in 2021 but failed to meet the subsequent inflation surge. Conversely, older households saw their real income surge 135% since 1976, whereas younger households' real incomes peaked almost 50 years ago.

Canadian insolvencies are on the rise, with a 12-month sum of filings hitting new highs in June. The OSB received 13,254 insolvency filings, up 11.5% from last year and more than doubling 2020 lows. This surge is not attributed to population growth but rather credit erosion, as BMO dismisses the issue.