Investors are taking over Canadian real estate markets, especially in Ontario. Teranet, the private operator of the province’s land registry, looked at buyers from January 2011 to August 2021. Their analysis shows the largest segment of buyers is now multiple property owners. Armed with cheap money, these investors now represent one in four Ontario home buyers. The share is even higher in Toronto, where first-time buyers dominated the market just 10 years ago.
Ontario Real Estate’s Biggest Buyer Is Owners With Multiple Properties
The largest group of home buyers in Ontario already have at least one other home. Multiple property owners represented nearly 25% of Ontario home purchases in 2021. This was a new record, with their share of the market advancing 8 points over the past decade, about a 50% increase. That’s right, one in four Ontario property buyers already owns at least one other home.
Ontario Real Estate Buyers By Segment From 2011 to 2021
The share of buyers of Ontario real estate from 2011 to 2021. The numbers for 2021 are YTD ending in August.
Multiple property owners notably peaked in 2017, and then dropped off until recently. Teranet attributes the decline to the stress test and the non-resident speculation tax. Both would have at least caused a psychological market shock.
First-time buyers have seen their share of the market shrink over the past few years. They represent just below 22% of purchases in 2021. This is a partial recovery from the generational lows the market share reached in 2017. As of 2021, first-time buyers are almost at the share they held a decade before. However, one needs to consider the massive trough between those years. There is now a huge backlog of first-time buyers displaced by investors.
Life event purchasers are a much more interesting segment than it sounds. These are transactions where related parties transfer property. Most often this occurs due to death, marriage, divorce, or generational transfers. Either 2018 was a big year for deaths and divorces, or an odd trend hit after stress testing and non-resident taxes were implemented.
Policy, First-Time Buyers, and Low Rates
Since this is an Ontario wide-trend, one should consider policy only applied to a few areas. The non-resident speculation tax only applied to the Greater Toronto region. A stress test is universal, but budgets weren’t pushed to the extreme elsewhere in Ontario. It would have had a limited impact in the rest of the province, or even some parts surrounding Toronto.
Higher interest rate costs also line up during this period. From 2018 to 2020 interest rates climbed, reducing profitability for property investors. In a high-demand market, this may prove to reduce investors more than first-time buyers.
Investors need profit to make sense, and higher financing costs reduce that. Rate cuts only prove to be a temporary relief for financing, as prices often rise to absorb any savings. That doesn’t really help first-time buyers in the long run, but is a big boost to investors. This is the exact opposite of the way central banks pitch low rates. Maybe they’ll look at that, after they figure out what transitory means.
Multiple Property Owners Are Buying Almost A Third of Toronto Real Estate
The “urban center” of Toronto is similar to the rest of Ontario — but more extreme. The City saw nearly 30% of purchases in 2021 go to buyers with multiple properties. Their share increased nearly 10 points over the past decade. Impressive considering how much larger the volume of sales is today.
Toronto Real Estate Buyers By Segments From 2011 to 2021
The share of buyers of Toronto real estate in its “urban center” from 2011 to 2021. The numbers for 2021 are YTD ending in August.
First-time buyers used to be the largest segment in the region, but those days are long gone. This segment represented a third of buyers a decade ago. Now it’s fallen below 27%, and the share of multiple property owners is now larger. The trend flipped from 2016 to 2018, when the market was declared “exuberant.” That’s what economists say when they don’t want to say “a bubble.”
There are a few insights in the Teranet numbers, but incentive and leverage are two big ones. Over the past decade, investors have come to dominate Ontario real estate. With low rates and high prices, how could they not? Investors also have cheap access to money, and they often have more resources to tap to leverage up.
Bringing up the next important point — leverage. Multiple property owners often use home equity as a down payment. The scale at which this is happening might be a bit of a problem. We already know a significant number of parents are leveraging property to provide first-time buyers with a down payment. The more leverage in the system, the larger the vulnerability in the event of shock.
Like this post? Like us on Facebook for the next one in your feed.