Investor Influence in Canadian Housing Market Surges to 30% in 2023

Investors are increasingly shaping Canada’s housing market, with their influence growing steadily, according to recent data from the Bank of Canada. 

In the first quarter of this year, investors were responsible for 30% of residential real estate purchases, up from 28% in the same period last year and 22% in 2020. The central bank defines investors as those who take out mortgages to acquire property while maintaining a mortgage on another home.

Meanwhile, the percentage of first-time homebuyers has decreased from 48% in early 2020 to 43% in the first quarter of 2023, while repeat buyers dropped from 30% to 27.5% over the same period. This shift underscores the changing dynamics in the Canadian housing market.

The Bank of Canada’s data highlights the significant impact investors have on housing trends, with their presence potentially amplifying house price cycles. During housing booms, increased investor demand can drive up prices further, while during stable or declining market conditions, fewer investors can contribute to decreased demand and lower prices.

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The COVID-19 pandemic, coupled with a low-interest-rate environment and aggressive marketing promoting real estate investing, has encouraged Canadians to invest in multiple properties. However, the federal government has focused its housing policies on foreign buyers, with a ban on purchases until the end of 2024, without addressing domestic investors.

The central bank’s data also underscores two key vulnerabilities in the Canadian economy: high household indebtedness and soaring house prices. While mortgage delinquencies remain steady at 0.12%, there has been a slight increase in highly indebted borrowers with mortgages 4.5 times greater than their annual income. 

Read: As the Cost of Living Continues to Rise, Household Debt Jumps to $2.34 Trillion in Canada

Additionally, 29% of new mortgage borrowers spend more than 25% of their gross income on mortgage payments, indicating vulnerability to rising interest rates or income loss.

Despite these concerns, there are signs of improvement in some areas. The share of homeowners making down payments of less than 20% has decreased from 18% in 2020 to 12% in the second quarter of 2023. Home flipping has also seen an increase over the past two years, but it still accounted for less than 3% of transactions in the first quarter, suggesting overall market stability.

Information for this story was found via the Globe and Mail, Toronto Star, and the sources and companies mentioned. The author has no securities or affiliations related to the organizations discussed. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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