Canada’s housing market hotter than ever — and investors are playing a big role

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Several recent reports suggest that gravity-defying home prices are drawing more and more investor capital into the Canadian housing market.

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In an address to the Ontario Securities Commission on November 23, Bank of Canada Deputy Governor Paul Baudry said a “sudden influx” of investors into the housing market helped fuel rapid price increases in early 2021. Canadian home prices were up 24.4 percent compared to June. According to data from the Canadian Real Estate Association (CREA), compared with the same month last year.

“Our analysis shows that many Canadians are buying homes as investment properties – that is, in addition to their principal residence – and the importance of this phenomenon has increased,” Beaudry said in prepared remarks.


Bank staff told Granthshala News that the BOC data online reflects domestic investors.

It’s a phenomenon Romana King, Vancouver-based director of content at real estate search site Xolo, says she has seen firsthand.

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Buoyed by skyrocketing prices, many homeowners in the Lower Mainland are tapping into home equity to buy investment properties in their prime homes or vacation homes in coveted locations like the Okanagan, she says.

Many investors see housing as a less risky place to put their money than the financial markets, King says. And record price increases since the summer of 2020 mean “real estate is something that attracts people,” she adds.

In Vancouver, benchmark home prices rose one percent in November compared to October. In Toronto, average home prices climbed 2.5 higher to $1,163,323, a nearly 22 percent jump from $955,889 in November 2020.

In Ontario, homeowners who already own one or more homes made a full 25 percent change in property title between January and August 2021, according to a recent analysis by TerraNet. This is up from about 16 percent in 2011.

“While end-users were the primary driver of the Toronto area’s housing boom in 2020, this trend is changing in 2021,” John Pasalis, president of Toronto-based Realosophy Realty, wrote in a recent report. Now investors seem to be playing a bigger and bigger role in driving up the real estate prices of the city, he added.

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And while home price hikes cooled somewhat in the summer, the market is heating up again. Nationally, home prices rose 2.7 percent in October compared to September and were 23 percent higher than in October of 2020, shows CREA data.

Mortgage data shows increased activity from the likely two groups of multi-property owners, says Rebecca Oaks of Equifax Canada. On the one hand, there are borrowers with two or three active mortgages on their credit file. Oaks says this group potentially includes a large number of homeowners who own a prime property and one or more vacation homes.

Then there are those with four or more mortgages, who are more likely to be real estate investors. Data from Equifax Canada shows homeowners in this group accounted for more than 15 percent in the April-to-June period of 2021 compared to the same period in 2019. The increase was particularly pronounced in Ontario (up over 21 percent) and Quebec (up about 16 percent).

Yet, nationally, this group now makes up only 1.3 percent of consumers with a mortgage, according to Oaks.

“It’s still pretty low. But there’s definitely been growth last year and this year,” Oakes says.

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According to statistics, homeowners with more than one mortgage account for more than 16 percent of the market.

Pasalis cautions that one of the concerns with an outsized presence of real estate investors in the market is that they can drive up home prices too quickly, otherwise they are locking out others who want to stay in the house. Looking forward to buying.

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Pasalis said that when buying a property, investors are less constrained by income considerations than traditional homebuyers because they ultimately make a profit by selling the home at a higher price. He said this also explains why investors cannot be deterred even when the carrying cost of the house far exceeds the rental income generated from the property.

In his report, Pasalis provided examples of comparable condo units in a building in downtown Toronto, whose price rose from $648,000 at the end of 2018 to $890,000 in October of this year. At that price, an investor with a 20 percent down payment and a 30-year mortgage would face a monthly mortgage payment of $3,500, about $1,000 more than the market rate for that type of entity, Pasalis wrote.

But “as long as another optimistic investor is willing to pay even more, the price will continue to rise,” he predicted.

That kind of investor psychology is similar to what Pasalis says he saw during 2016-2017 when home prices surged in Toronto, which prompted the federal government to step in with mortgage stress test requirements for borrowers.

The Bank of Canada’s Beaudry warned that investor expectations of future price increases could “expose the market to a higher chance of a correction.” “And, if that happens, the damage could spread far beyond investors. This is because, for many families, their access to assets and low-cost credit is tied to the value of their home.”

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Research into the US housing market crash of 2007–08 found that investors who took on more debt and were more vulnerable to declining home prices had higher rates of mortgage default than owner-occupants, something that Which used to increase the swing downwards in the house…

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