Study: New immigrants in Canada bought more expensive homes with lower incomes before the interest rate crisis

Ottawa —
A new study revealed that new immigrants who entered the Canadian housing market before the sharp rise in interest rates were able to achieve the dream of homeownership, but at a higher financial cost compared to Canadian-born individuals, as they bought higher-priced homes despite having lower incomes, which made them more reliant on mortgages and less able to save.

The study showed that new immigrant buyers recorded higher purchase prices than their Canadian counterparts in all provinces covered by the data, despite their average household income being lower, indicating that a larger proportion of their financial resources went towards buying housing.

In British Columbia, the average income of recent immigrant households was about $125,000 annually, while the average price of the home they purchased was $660,000, whereas the average income of Canadian-born buyers was $135,000, but they bought less expensive homes with an average price of $580,000.

The same pattern was recorded in other provinces, including Nova Scotia and Manitoba, where new immigrants bought higher-priced homes despite having lower incomes compared to Canadian buyers.

The study also showed that new immigrants were less likely to contribute to retirement savings plans during the year of home purchase, reflecting the allocation of a larger part of their financial resources towards securing the down payment and mortgage installments, rather than building long-term savings.

The study authors believe that this approach makes homeownership the center of financial security for new immigrants, but it also increases the link between their economic stability and the performance of the real estate market, as rising mortgage values and declining savings reduce the financial safety margin in the event of falling home prices or rising borrowing costs.

The data also showed that immigrant households headed by individuals under the age of thirty-five were bearing much higher monthly installments than similar Canadian households, and the average remaining mortgage balance for them reached levels far exceeding those held by Canadian-born buyers.

Despite these pressures, the study indicates that homeownership rates among new immigrants were rising in the years preceding the interest rate hike cycle, benefiting from lower borrowing costs and improved income levels during that period.

The report confirms that these results reflect the reality of the housing market before and after the significant rise in interest rates, meaning that new buyers who entered the market at that time may face greater pressures today when renewing their mortgages, amid rising financing costs and declining housing affordability.