Investors have increased their share of mortgaged homebuyers
Investors in Canada’s residential real estate market accounted for a larger share of mortgaged purchases than repeat homebuyers in recent years despite rising interest rates.
An analysis by the Bank of Canada reveals that 27.5% of mortgaged home purchases in the first quarter of 2023 were by repeat homebuyers while 29.9% were by investors and 42.6% were by first-time homebuyers.
Two years earlier the gap between investors and repeat buyers was around 10 percentage points with investors lagging, however investors gained ground and overtook repeat buyers in the last quarter of 2022.
For the report, investors are considered those who take out a mortgage to buy a property while maintaining a mortgage on another property.
The data also reveals a sharp rise in home flipping, although the overall numbers are a small share of overall home purchases. In Q3 2021 just 0.98% of all homes purchased were then sold on within 6 months. In Q1 2023 this had risen to 1.24%.
The BoC’s Canadian Survey of Consumer Expectations found shows that average home price expectations for the next 12 months increased to 4.34% nationwide in the first quarter of 2023, up from a low of 1.45% in the last quarter of 2022.
However, the BoC’s report includes a warning:
“House prices have climbed considerably since the start of the global pandemic. Expectations of future price increases and strengthened investor demand likely contributed to this rise. A large misalignment of house prices relative to longer-term market drivers could lead to an abrupt price correction in the future.”
The warnings continue with an analysis of the mortgage debt service ratio, specifically those households with a DSR of more than 25% which has increased from 12% of all new mortgages in the most recent trough in Q4 2021 to 29% in Q2 2023.
However, the loan to income ratio has fallen sharply. In Q4 2021, 25% of households had an LTI over the 450% threshold and were therefore considered the most vulnerable to a financial shock. In Q2 2023, this had dropped to 15%.
Source: Wealth Professional
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