Over a quarter of all home purchases in 2021 were made by buyers who already own a home—investors in many cases—according to data from Teranet.
And the Bank of Canada has highlighted this rising segment as a growing concern, likely responsible for helping to drive rapid price growth.
“A sudden influx of investors in the housing market likely contributed to the rapid price increases we saw earlier this year,” said Deputy Governor Paul Beaudry in a speech this week. “In such a case, expectations of future price increases can become self-fulfilling, at least for a while.”
This, in turn, creates added risk within the market, Beaudry added.
“That can expose the market to a higher chance of a correction. And, if one occurs, the damage can spread far beyond the investors,” he said. “That’s because, for many households, their wealth and access to low–cost credit are tied to the value of their home.”
Beaudry added that the Bank of Canada will continue to monitor this trend, and that BoC staff are already looking into how investors are “affecting housing-related vulnerabilities.”
Investors a Growing Market Share
Beaudry’s comments came on the heels of a new report from Teranet that found the share of recent home purchases by “multi-property owners” has risen from the smallest buyer segment just 10 years ago (16% of purchases), to the highest segment today (over 25%).
Multi-property owners aren’t exclusively investors, as it can include owners of cottages and other vacation homes, as well as parents purchasing property for their children.
At the same time, the share of first-time buyers in the market has dipped over the past 10 years, particularly in 2016 following the introduction of the mortgage stress test.
While the volume of most buyer segments has declined since the start of the pandemic, the share of multi-property owners was the only one to continue to rise.
Housing Market Risks are Growing
As of October, home prices have risen 23% compared to a year earlier, but are up over 30% since the start of the pandemic.
As home prices and mortgage sizes have increased, the amount of ‘wiggle room’ for recent purchasers has decreased, making them more vulnerable to changing economic and rate conditions, Beaudry noted.
“A key concern here is that financially stretched households have little breathing room to absorb any disruption to their income. A job loss could force many to drastically cut their spending to keep servicing their debt,” he said, adding that a drop in home prices could also reduce household consumption, since a large number of homeowners use their house as collateral to secure their home equity lines of credit (HELOCs).
“In addition, the fact that many households have used a long period of historically low interest rates to accumulate a lot of debt means that the economy is likely also more sensitive now to any increase in borrowing costs.”
At present, markets are now forecasting seven quarter-point rate increases by the Bank of Canada starting in March. But according to the Bank of Canada, rate hikes should be expected at the earliest by the “middle quarters” of 2022.
Article feature image by Christinne Muschi/Bloomberg via Getty Images
Last modified: November 26, 2021
