Are Canadian investors beginning to think real estate returns are a little stretched? Statistics Canada (Stat Can) data on net investment in foreign securities shows big growth for September. Investors have accelerated sending funds out of the country — primarily into US investments. At the same time dollar volumes for Canadian real estate investment have been on the decline. Since investors make up a big share of buyers now, this can be a headwind for Canadian real estate markets.
Canadians Are Pumping Billions Into Foreign Equities
Canadians buying foreign equities is back with a vengeance. A net-increase of $17.2 billion into foreign securities was observed in September. This is 33% higher than the same month last year, and 275.6% higher than the September average for the past five years. It declined briefly last year, when the lockdowns first happened. Now investors are making up for lost time and then some.
Breaking down the investment into foreign securities, the majority piled into US securities. The US netted $13.2 billion of funds invested in foreign securities in September. This works out to a 41.4% increase from last year and 576.1% higher than the 5-year average for prior Septembers. To say this is unusual to see Canadians move this much money into US dollar exposure is an understatement.
Canadian Investment In Foreign Securities and Real Estate
The net flow of Canadian investment in foreign securities compared to the dollar volume of existing-home sales.
Source: Statistics Canada; CREA; Better Dwelling.
Canadian Are Pulling Back On Real Estate Investment
Canadians piling into foreign equities might be taking capital away from real estate. The dollar volume of existing-home sales reached $34.9 billion in September. This represents a drop of 5.9% from the same month a year ago, but 50% higher than the average of the past 5 years for the month. It’s a lot more than usual but this is clearly a cooling trend — something the industry is expecting.
Canadian Investment In Foreign Securities and Real Estate
The net flow of Canadian investment in foreign securities compared to the dollar volume of existing-home sales.
Source: Statistics Canada; CREA; Better Dwelling.
The dynamic is interesting due to Canada’s large share of real estate investors. For example, investors represent more than a quarter of Toronto real estate purchases. If the same investors think returns are better elsewhere, more cash can be diverted. A well funded demographic driving prices higher shrinking typically means slower growth.
You’re pretty good at anticipating reader takeaways but I think you’re missing one that’s going to become a head-scratcher for some.
This trend would be significantly amplified if it were possible to calculate the net investment into housing. If one person sells $1 million home to fund the purchase of a $2 million home, the gross volume is $3 million but only $2 million more dollars entered the market.
Now what if they’re an investor that doesn’t buy another home at this point? They took a $1 million out and someone put in $1 million — a net change of $0.
Unless these are all first-time buyers or investors 40% or so of that real estate investment is actually subject to an adjustment of probably 50% . Since we can’t do those numbers without gov data that costs $50/pop, I’d estimate a 20% reduction on all of those numbers to get an idea of what’s really happening.
Sell your best performers and look for growth. Record growth for real estate was a gift. I hope people don’t waste it.
People typically hold onto to their investments (whether it be stocks or real estate) in a bull market, and sell when it’s a bear market. Essentially people buy hype and sell fear.
I’d reckon most people won’t be liquidating their homes until investor sentiment changes regarding purchasing Canadian real estate, at which point it will likely be a race to the bottom.
is it not obvious that investment sentiment has indeed changed
This. People are statistically terrible at timing markets.
My preference for my cash-stocks, stocks stocks! Long term! US STOCKS! All cash converted to diversified stock investments. As of now your returns are 300-400% and sometimes more in period of 3-4 years.
For Real Estate -borrow money from the bank.
Its okey return on average.