Canadian housing market

Perhaps you have been wondering how a young family living in a detached home in Toronto or Vancouver can afford it. It could be that they already own another home. In fact, they may possess multiple homes as part of their investment strategy, new research has discovered. It’s no secret that the red-hot Canadian housing market has been driven by a number of factors including enormous demand, tight inventory and historically low borrowing costs. And in some markets, investors are a bigger factor than in others, with federal proposals to rein in accelerating prices.

Are investors making it more difficult for first-time homebuyers to get their foot in the door, amid sky-high valuations and bidding wars? For now, the industry is processing the data to determine how the situation is unfolding across Canada.

Investor Activity in the Hot Canadian Housing Market

The number of people adding at least a fourth mortgage advanced 7.7 per cent, doubling the figure among first-time borrowers in the 12 months ending in June, new data from a leading consumer credit reporting firm revealed.

According to Equifax Canada, borrowers with more than one home loan accounted for nearly one-fifth of the mortgage market. At the same time, purchases by these consumers have increased at a rapid pace, buoyed by soaring housing prices and declining mortgage rates. This trend has allowed people to borrow against one property to acquire another one.

“There is a population that is taking advantage of the current housing market situation to use it as an investment for their retirement instead of traditional routes,” said Rebecca Oakes, assistant vice president of advanced analytics at Equifax, in a statement to Bloomberg News. “There is a definite growth in terms of people with multiple mortgages.”

Equifax also learned that there are more mortgages out there and larger ones, too. The average new home loan was for $355,000 in the second quarter of 2021, up 20 per cent from the same time a year ago. Suffice it to say, Canada is addicted to mortgage debt, and this is concerning when it comes to interest rates, explained Oakes in an interview with CBC News.

“A small movement in interest rates can actually do quite a large increase in what a consumer needs to [come up with] in terms of those payments,” she said. “That’s kind of why we’re a little bit concerned.”

Meanwhile, a separate report from Teranet, a private operator of Ontario’s land registry, found multiple property owners have accounted for approximately one-quarter of the province’s home acquisitions this year, a new record high. As well, first-time homebuyers represented about a fifth of Ontario real estate purchases in 2021.

In Toronto, close to one-third of purchases were completed by homebuyers with at least one other property. This is up close to 10 per cent from a decade ago.

The supply situation in the Canadian housing market could intensify, as seasonally adjusted building construction investment declined two per cent in August to $17.7 billion. However, the drop was offset by higher non-residential building construction, rising 0.6 per cent in August.

A Housing Bubble in Canada?

Over the last 12 months, average housing prices have surged 14 per cent to just below $686,650 in October, according to the Canadian Real Estate Association (CREA). Despite Toronto and Vancouver’s real estate markets skewing the national average price upward, Swiss bank UBS has sounded alarm bells pertaining to housing bubbles in Canada. Plus, the financial institution noted, Toronto possesses the second-largest housing bubble in the world. “Real prices increased by almost eight per cent from mid-2020 to mid-2021,” the bank said, adding that the growth has been fuelled by historically low interest rates.  Should the Bank of Canada (BoC) pull the trigger on a rate hike, this “could lead to an abrupt end to the current housing frenzy,” UBS noted.

The central bank has signalled that it is ready to raise interest rates next year as it winds down its monetary stimulus efforts.

However, some real estate industry experts maintain that Canada is not in housing bubble territory, because there is not enough supply and too much demand. A bursting bubble, or even a significant correction, is unlikely to happen in the foreseeable future.

A Federal Response to Investors

Prime Minister Justin Trudeau and his Liberals have presented a suite of new measures to address real estate investors and speculators. This includes ending blind bids, introducing a two-year ban on foreign homebuyers, and expanding the vacant home tax.

Will this be enough to slow price growth and enable more Canadians to become property owners, to raise a family and fund their retirement years? Some industry experts assert that blanket bans and more taxes on investors won’t be enough, maintaining that housing won’t truly be accessible and affordable for these hopeful home-buying families until supply issues are tackled in the tightening markets from coast to coast.


Posted by Teri-Lynn Jones on


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