Investors Made up 30 Percent of Home Purchases in Canada: BoC

A new home is displayed for sale in Ottawa on July 14, 2020. (Sean Kilpatrick/The Canadian Press)

The presence of investors in Canada’s housing market has steadily increased since the onset of the COVID-19 pandemic, with this group purchasing nearly one-third of all residential properties in the first three months of 2023, according to data by the Bank of Canada (BoC).

Released on Sept. 8, the central bank’s data shows that investors accounted for 29.9 percent of home purchases nationwide in the first quarter of this year—an increase from the 28.25 percent recorded during the same period last year, and 21.78 percent in 2020.

The quarterly data was compiled by the bank as an indicator to track the progress of “two vulnerabilities” in the Canadian economy, namely elevated household indebtedness and high house prices.

“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,” said the bank in a note, which defined investors as homebuyers who obtained a mortgage to buy a property while maintaining a mortgage on another one.

‘Amplify’

Compared to the investors, the trend speaks differently for first-time homebuyers: the share of mortgaged home purchases for this group dropped 5 percentage points, from 47.94 percent in quarter one of 2020 to 42.57 percent in the same months of this year. A similar trend was observed for repeat homebuyers whose share of purchase fell from 30.29 percent to 27.53 percent over the same period.

The BoC noted investor activities have considerable influence on residential real estate, such that it “can amplify house price cycles.”

“During housing booms, greater demand from investors can add to bidding pressures and intensify price increases,” the bank said. “Similarly, when prices are stable or declining, a lower influx of investors can add downward pressure on housing demand and prices.”

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In an attempt to ease the housing shortage among Canadians, the federal government has turned its attention to foreign home buyers. In January, it implemented a temporary ban on foreigners buying residential property for two years until the end of 2024.

Two months later, however, the government repealed a section of the regulations so that the prohibition doesn’t apply to “vacant land zoned for residential and mixed use,” which it says can now be purchased by non-Canadian buyers and “used for any purpose ... including residential development.”

‘Vulnerable’

Among the metrics measured, the BoC also tracked the share of Canadian households who missed their payments in various debts for at least 90 days. Late payment in mortgage accounted for 0.12 percent of the households in quarter two of 2023. Meanwhile, 2.17 percent of households had trouble keeping up with “instalment loans,” followed by 0.87 percent in credit cards and 0.57 percent in automobile loans in the same period.

A survey conducted by the Chartered Professional Accountants of Canada in June and released on Aug. 29 indicated sky-rocketing inflation and interest rates have created financial challenges for Canadians, with 24 percent of them reporting they could not come up with $500 in cash tomorrow without borrowing or selling something.

The percentage of new borrowers who spent more than 25 percent of their annual income on mortgages surged from 14.74 percent to 29.18 percent between the first quarter of 2020 and 2023, the BoC noted.

“All else being equal, a household that spends a large portion of its income on mortgage payments may be more vulnerable to financial stress—it may be more likely to fall behind on debt payments if a negative income shock or a rise in mortgage interest rates were to occur,” analysts wrote.

The last 18 months has seen the BoC hike its interest rate from a low 0.25 percent in March 2022 to a high 5 percent this month, triggering higher prime rates and variable and adjustable mortgage rates along the way.

The central bank says it won’t rule out further hikes.

“[W]e remain concerned about the persistence of underlying inflationary pressures, and Governing Council is prepared to increase the policy interest rate further if needed,” said BoC Governor Tiff Macklem in a news release on Sept. 7.

Bryan Jung, Marnie Cathcart, and Peter Wilson contributed to this report.