The extent of investors’ presence in the Canadian real estate market has long been a contentious subject, blamed in part for rapidly escalating home prices, while also recognized as an important contributor to the rental segment. Pandemic-era market trends have only increased the scrutiny on this buyer group, as both affordability and housing supply reach crucial lows.
A new study is shedding some light on just how much of an impact investors have had on the market over the course of COVID-19, revealing they account for nearly one in five buyers over the last 18 months.
The survey, which was conducted by rates comparison site RATESDOTCA in partnership with BNN Bloomberg, polled 1,547 online participants between January 7-9, with the intent of discovering who pandemic homebuyers have been, and how they’ve funded their real estate purchase.
According to the findings, 9% of all respondents reported buying a home over the last year and a half. Of them, 40% identify as first-time homebuyers, who have purchased a property to use as their principal residence. However, 39% reported they already own a home with an additional 19% stating they own multiple properties.
This investor makeup is also evident in the methods used by buyers to fund their home purchases; 14% indicated they had leveraged equity from an existing property to buy another. A total of 24% said they had funded their purchase through the sale of another property, while 47% said they used personal savings. Of the first-time buyer group, 19% were gifted down payment funds from a family member.
Increasing Challenges for Housing Supply
This trend spells tougher times ahead for that first-time segment, says RATESDOTCA Managing Editor John Shmuel, as greater pressure is put on already historically low housing supply.
“We have seen an increasing trend of Canadians who would have historically sold their primary residence to upgrade to a bigger home but are now keeping their original homes and buying multiple properties for rental income. This increase in demand has removed a large source and inventory of housing from the market, which in turn puts pressure on the supply and makes houses more expensive,” he tells STOREYS. “This, in turn, hurts first-time homebuyers who are now competing for fewer houses in the market.”
These findings mirror similar research conducted by the Bank of Canada this month, which took a look at the makeup of home buyer types since 2014, based on mortgage originations and credit bureau data.
Those findings also concluded real estate investors made up a 19% share of the purchaser pie over that time period, with first-time buyers accounting for one half, and repeat buyers at 31%.
However, the BoC’s data finds investor presence increased during the pandemic compared to previous years, accounting for 21.63% of homebuyers in Q2 2021. This draws an interesting parallel to market activity in 2017, says the Bank — the only other time investor share has surged over the studied timeline, and also notably during a low-interest rate environment; the Overnight Lending Rate sat at 0.5% for the majority of that year, before being hiked in September in response to the overheating market.
Not surprisingly, investor presence was heaviest in the City of Toronto in Q1 2021 at 23.9%, followed by Calgary at 21.68%, and Vancouver at 20.4%. It was lowest in Quebec City, at 13.78%.
The BoC’s research also indicates that, due to rising home prices, the share of first-time homebuyers has been on the decline.
“In contrast, the share of purchases by first-time homebuyers has declined since 2015, reaching a new low in 2021; in the same six-year period, home prices have risen much faster than disposable income.”
According to the Canadian Real Estate Association, national home prices hit a new high of $713,500 in December, a year-over-year increase of 17.7%.
A Growing Source of Economic Vulnerability
With higher interest rates all but promised in the short term, these stats support growing concern that overly-leveraged homeowners will be increasingly sensitive to a higher cost of borrowing, leading to greater vulnerability as a whole for Canada’s economy.
“… looking at debt associated with the latest-issued mortgages will tend to understate the financial vulnerability of investors who hold multiple mortgages,” writes the BoC in the their report.
“Investors that are highly indebted could face difficulty servicing their debt following the loss of income, or an increase in interest rates.”
However, the RATESDOTCA / BNN Bloomberg data leaves cause for optimism, finding that many respondents, regardless of purchaser type, are putting down large down payments. A total of 41% of survey takers said they put 20 – 30% down on their home purchase, with 15% paying more than 41%, while 35% reported being a high-ratio borrower, meaning they’ve put down less than 20% on a home valued below $1 million — an increasingly tall order in Canada’s priciest markets.
Penelope Graham is the Managing Editor of STOREYS. She has over a decade of experience covering real estate, mortgage, and personal finance topics. Her commentary on the housing market is frequently featured on both national and local media outlets including BNN Bloomberg, CBC, The Toronto Star, National Post, and The Globe and Mail.