'A new phenomenon': Big investors eye Canada's home market, ReMax president says (2022)

'A new phenomenon': Big investors eye Canada's home market, ReMax president says (1)

Investment firmshave become the biggest new buyers of U.S. homes — a trend that could make home ownership more difficult for average families.

The idea of big investors buying single-family homes to rent them out is"just in its infancy" in Canada, but is worth watching, according to the president of one of this country's largest real estate firms. Some advocacy groups fearfamilies can't compete against money managers with billions in assets.

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As interest rates rise and property prices fall across much of North America, deep-pocketed investors such as hedge funds, private equity giants and pension managers are hunting for stable assets to offset inflation and volatile stock markets, according to market observers.

In the first quarter of 2022, investors made up a record 28 per cent of U.S. single-family home sales, according to a report published in June by the Harvard Joint Center for Housing Studies, compared to less than 20 per cent a year earlier.

"Investors bought a larger share of America's homes than ever before," noted aseparate report from the real estate firm Redfin.

The trend of money managers buying single-family homes to rent out is "a new phenomenon" for the Canadian market, said Christopher Alexander, president of ReMax Canada. He thinks the notion could catch on here as it has south of the border, especially given recent price declines.

"The lower you can buy as an investor, the higher the chance of selling high," Alexander said in an interview.

(Video) 'New Phenomenon': The Domestic Market of Big Investor Eye Canada, said President Remax

"They are well capitalized, they are smart and they have the means to make an impact in the marketplace."

As middle-class families increasingly struggle to buyhomes, analysts say more capital from large firms is expected to enter the Canadian market, further straining supply and affordability for average people. A lack of hard data on the scale of these investments makes it harder for policymakers to respond to the emerging trend, affordable housing advocates said.

Lack of Canadian data

The scale of current institutional ownership over Canadian housing is unclear, but analysts believe it's far lower than in the U.S. and generally a minor cause ofthe rapid rise in home prices thiscountry has seen overthe last decade.

The Canadian government does not have clear data on the footprint of large investors in the domestic housing market. Neither Statistics Canada nor the Canadian Mortgage Housing Corporation (CMHC), federal agencies which track the sector, could sayhow many homes are owned by investment firms.

WATCH |Soaring rents price out some Canadians:

"For the moment, Statistics Canada does not publish information on institutional investors, and the type of residential properties they own,"a spokesperson for the government organizationtold CBC News via email.

"CMHC does not collect the data that you are looking for,"a spokesperson echoed.

Nailing down purchases by institutional investors isn't an easy task, said ReMax's Alexander,especially as these firms often "don't put all of their purchases in the same name or will register properties to different numbered companies or holding companies."

"I just don't know if we are set up to track a new phenomenon," he said.

'The question of not knowing'

The subject is politically sensitive.Few other major property firms would comment on investor interest in the Canadian housing market.

(Video) Will Big Investors Like Blackrock Buy Up Canadian Real Estate? 2022 Canadian Housing Market

The Canadian Real EstateAssociation, the trade body representing brokers, declined to comment. So did Royal LePage, a major brokerage. Two other property agencies, Century 21 and Keller Williams, didn't respond to interview requests.

'A new phenomenon': Big investors eye Canada's home market, ReMax president says (2)

Getting a clear picture of the scale of institutional investments is the first step for determining how to respond to them, said Jennifer Barrett, a senior plannerwith the Canadian Urban Institute, a Toronto-based non-profit.

"I think the question of not knowing, onto itself, is an interesting piece to explore," she said in an interview. "The federal government needs to address the financialization of housing."

While the extent of institutional investment in Canada's housing market isn't clear, individuals who own more than one propertyhold 29 per cent of residences in B.C., 41 per cent in Nova Scotia and 31 per cent in Ontario, according to Statistics Canada figuresreleased in April. These owners could be mom-and-pop landlords who own a couple of rental properties or larger investors who register homes under a single name.

Industry denies pushing up prices

Despite the lack of hard data,institutional investors recentlymade headlines in Canada.

Core Development Group, a Toronto-based real estate firm,drew anger last year when it announced plansto spend$1 billion buying single family homes in mid-sized Canadian cities. The company didn't respond to requests for comment on the state of its investments.

WATCH |Average home prices begin to dip across Canada:

(Video) What Should Investors Do With Their Money in the Current Market Uncertainty?

Blackstone, which describes itself as the world's largest alternative investment firm, with billions spenton single-family U.S. homes, opened a real estate office in Toronto in May to expand on its$14 billion in Canadian real estate assets.

"We expect to continue to be very active in the Canadian market, particularly in areas like logistics, high quality creative offices and life science offices, studios and multifamily residential," a spokesperson for the company told CBC News via email.

"We continue to have no intention of investing in the single-family housing market in Canada."

Blackstone owns approximately 0.02 per cent of single-family homes in the U.S., according to company data, accounting for roughly 25,000 units.

"Given our ownership levels, we have virtually no ability to impact market rent trends," Blackstone said in March in an online question and answer session respondingto criticism."Rents are going up because there is significantly less supply of housing across the globe than demand for it."

U.S. realities

Private equity investors in the U.S. started buying up single-family homes following the 2008 subprime mortgage crisis and ensuing recession, saidBarrett of the Canadian Urban Institute. But the trenddid not catch on to nearly the same degree in Canada.

Since then, corporate landlords have acquired an estimated 350,000 homes, according to testimonyheard bythe U.S. House financial services committee on June 28 probing affordability challenges and private equity.

'A new phenomenon': Big investors eye Canada's home market, ReMax president says (3)

(Video) 🛑Stop Making this Mistake.#canada #canadianfinance#recession #saving #moneytoks101 #canadiandollar

By 2030, investors could control as much as 40 per cent of the U.S. rental home market, according to data cited by PERE, an industry journal.

Aside from fears about deep-pocketed financiersout-competing regular people to buy homes, tenants renting from big investorshave faced a slew of problems, saidMadeline Bankson, a researcher with the Private Equity Stakeholder Project, a U.S.-based advocacy group.

Poor maintenance, broken air conditioners in the sweltering U.S. south, a lack of garbage collection, mould,exorbitantchargesfor late payments, and no one to respond whenthings break,are among the problems tenants in houses owned by large investors have reported to advocates.

"The model is: increase revenues, decrease costs," Bankson said.

Fears of a 'perfect storm'

Unlike average peoplewho usually require a mortgage to purchase a home, equity investors typically buy with cash, meaning they are more insulated from rising interest rates than individuals.Blackstone, for instance, boasts$941 billion US under management.

ReMax's Christopher Alexander, who closely tracks Canada's market, worries a "perfect storm" could be on the horizon post-2024, as population growth continues and supply chain challenges hit plans for new construction.

'A new phenomenon': Big investors eye Canada's home market, ReMax president says (4)

The rising U.S. dollar compared to Canada's currency also makes Canadian housing more attractivefor foreign equity investors, Alexander said.

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"They see we have tight supply and no real solution to it through building;we can't keep pace, and they see a good climate for long-term appreciation," he said.

"Investors aren't thinking about raising their families there; it's much more mathematical and numbers focused. If you are buying a home to live in, it's emotional."

FAQs

What will happen to the Canadian housing market in 2022? ›

Rising interest rates have led to the end of Canada's pandemic-era housing market boom, and both prices and sales will continue to tumble into 2023.

Is the Canadian real estate market going to crash? ›

Research shared with Fortune forecast Canada's housing market to contract by 13% by the end of 2023, less than New Zealand (-23%) and Australia (-18%), but deep enough that it could likely still be classed as a Canada housing market crash.

Will the Canadian housing market get better? ›

In its latest housing market outlook, the association says it expects 532,545 properties to trade hands via Canadian MLS systems this year, down 20 per cent from the 2021 annual record. The national average home price is forecast to rise by 4.7 per cent to $720,255.

Is real estate dropping in Canada? ›

Home sales drop 5.3 per cent in July

The latest numbers from the Canadian Real Estate Association (CREA) show that the average price of a home in Canada was $637,673 in August 2022, down 3.9 per cent from the same month last year.

Will house prices go down in 2023? ›

All survey respondents said to expect home-price deceleration in 2023. The U.S. housing market will shift in favor of home buyers by the end of 2023. That's according to 44% of the 107 economists and housing experts surveyed by real-estate company Zillow.

What will happen to house prices in 2022? ›

Interest rate predictions

Based on this data, Capital Economics has forecast house prices to rise throughout 2022, before falling by 5% in 2023.

Will the housing market crash in 2023 Canada? ›

Latest Updates. Five respondents predicted a double-digit fall, as much as 18.2% next year. House prices in Toronto and Vancouver were forecast to drop 8.5% and 7.3% in 2023 after surging 13.0% and 10.6% this year. "The pandemic may not be over but the pandemic-era housing market boom certainly is.

Is the housing market gonna crash? ›

Actually, economists do not think it will. Housing economists point to five main reasons that the market will not crash anytime soon: low inventory, lack of new-construction housing, large amounts of new buyers, strict lending standards and a drop in foreclosures.

Will the housing market crash in 2024 Canada? ›

Housing sales will also see a downturn, with expected declines of 34% and 29% in the high and moderate interest rate scenarios. They predict home prices to begin to climb again in 2024, though note that elevated housing market prices will persist.

How much will house prices drop in 2023 Canada? ›

Canadian home prices could drop up to 25% by early 2023: TD Back to video. The report also estimates the number of home sales will fall 35 per cent over the same time period.

What will houses be worth in 2030 Canada? ›

By 2030, the price of a home will be 5% higher than the inflation adjusted value in 2020. The base case shows 5% growth over a whole decade, which is a big change from the past decade. The firm argues a home price correction “may cause some near-term pain,” but it's needed for a healthy economy.

Why are Canada house prices so high? ›

Housing prices in Canada are still incredibly high and here is why -- we are still dealing with a supply shortage in desirable locations, higher immigration levels have put pressure on demand, along with the strong desire for urban lifestyle living especially in Toronto, Vancouver and Montreal.

Will Canadian home prices drop in 2022? ›

This dynamic results in a 23% annual average decline in Canadian home sales in 2022 and a 12 per cent pullback in 2023.” Average home prices are projected to climb 3.2 per cent this year and tumble 8.1 per cent in 2023. Home sales are forecast to plunge 30.9 per cent in 2022 and 13.5 per cent in 2023.

Will Toronto House Prices Drop 2023? ›

House prices in Toronto and Vancouver were forecast to drop 8.5 per cent and 7.3 per cent in 2023 after surging 13.0 per cent and 10.6 per cent this year. “The pandemic may not be over but the pandemic-era housing market boom certainly is.

Are real estate prices going to drop in Ontario? ›

Home sales have “fallen off a cliff” in Ontario, and prices are tumbling down after them. Desjardins Economic Studies has revised its forecast for the province's housing market, and now expects home prices to fall 24% from their February 2022 peak by the end of 2023.

Will mortgage rates go down in 2024? ›

Over the coming year, Zillow predicts that U.S. home prices will rise another 2.4%. Goldman Sachs predicts that U.S. home prices will rise 1.8% in 2023 and 3.5% in 2024.

What will mortgage interest rates be in 2023? ›

According to the organization's researchers, if a recession were to materialize in the first half of 2023, "mortgage rates would fall around 30 basis points from the baseline forecast level of 5.2%."

What will happen to house prices in a recession? ›

Historically, house prices tend to fall when there is a deep and prolonged contraction in the economy with rising unemployment. '

Is it smart to buy a house right now? ›

Based on data, now is a good time to buy a house — and first-time buyers agree. According to Fannie Mae's National Housing Survey, more than 60% of renters would buy a home if their lease ended. Most expect rents to rise sharply in the next 12 months. The housing market may favor Fall home buyers.

Is it a good time to move house 2022? ›

2022 will remain a strong sellers' market

If you do decide to sell your home this year, your chances of a finding a buyer are very high, as we're still seeing huge levels of buyer demand, and not enough homes available. Despite this month's seasonal price fall, we expect asking prices to rise by another 5% in 2022.

What causes house prices to crash? ›

These bubbles are caused by a variety of factors including rising economic prosperity, low-interest rates, wider mortgage product offerings, and easy access to credit. Forces that make a housing bubble pop include a downturn in the economy, a rise in interest rates, and a drop in demand.

What happens to house prices when interest rates rise Canada? ›

Higher interest rates lead to higher monthly payments

However, higher BoC interest rates almost immediately impact the housing market through higher monthly housing payments. As the five-year-fixed mortgage period ends for consumers in Canada, households will have to start higher monthly payments.

Is it a good time to buy a house in Ontario 2022? ›

The second quarter of 2022 is the first quarter in more than three years (since Q1 2019) to post a quarter-over-quarter decline in home prices. Royal LePage is forecasting that the aggregate price of a home in Canada will increase 5.0 per cent in the fourth quarter of 2022, compared to the same quarter last year.

Will house prices drop in Ontario 2025? ›

CMHC sees the average home price bottoming out in the second quarter of next year and then gradually rebounding over the latter half of 2023 and 2024. It predicts the average home price will fully recover at the end of 2024 and surpass this year's peak by 2025.

Will there be a housing market crash in 2022? ›

Most economists believe that a real estate market crisis or collapse will not occur in 2021 or 2022. According to some industry experts, the most likely scenario is that home prices will begin to climb more slowly in the months ahead.

How much did house prices drop in 2008? ›

During the financial crisis, house prices fell by a total of 26.4 percent - from a high of 10.8 percent in June 2007, to a low of a -15.6 percent in February 2009. But the largest drop in annual house price growth in a month during this time period was 2.5 percent - half of that recorded for May to June this year.

Why did the housing market crash in 2008? ›

The 2008 financial crisis began with cheap credit and lax lending standards that fueled a housing bubble. When the bubble burst, the banks were left holding trillions of dollars of worthless investments in subprime mortgages. The Great Recession that followed cost many their jobs, their savings, and their homes.

What will interest rates in Canada be in 2023? ›

According to the Organisation for Economic Co-operation and Development, the Bank of Canada will raise rates as high as 4.5%in 2023 before it's through; that's considerably steeper than the initial 3 – 3.5% expected by economists, and well above the Bank's inflation growth target of 2%.

Will interest rates go down in 2024 Canada? ›

The Bank of Canada is projecting it will take until early 2024 for inflation to subside and for rates to fall. However fixed mortgage rates that are correlated with the Bond Yield could start falling sooner, and if the economy slows faster than expected, we may see the Central Bank lower rates in 2023.

Will house prices go up in 2024? ›

While higher interest rates and a two-year ban on foreign ownership would help cool down the market, the significant drop in home prices will happen by mid-2024.

Will Canada house prices go down? ›

A report by TD Bank suggests the average price of a home in Canada could fall 20 to 25 per cent from its peak seen earlier this year to the first quarter of 2023. The report also estimates the number of home sales will fall 35 per cent over the same time period.

When was the last housing market crash in Canada? ›

The 2022 Canadian property crash refers to a significant rise in Canadian real estate prices from 2002 to present (with short periods of falling prices in 2008 and 2017) which some observers have called a real estate bubble.

What will happen to the Canadian housing market? ›

Desjardins is forecasting the average home price in Canada will decline by nearly 25 per cent by the end of 2023.

What will my house be worth 2030? ›

According to RenoFi, the average price of a single-family home in the U.S. could reach $382,000 by 2030. Depending on where you live, this figure may seem like a drop in the bucket compared to the home prices in your city.

What happens when a housing bubble bursts? ›

Once speculators recognize that housing prices are on the rise, they enter the market as well, further driving up demand. The phenomenon is called a bubble because inevitably, at some point, it will burst. Typically, it bursts when interest rates start to rise again, wiping out demand.

Will House Prices Drop in Toronto 2022? ›

The average home sold price in the Toronto area increased 1% year-over-year to $1,079,500 for August 2022. A surprising month-over-month increase in prices has been met with a month-over-month increase in sales activity. Detached home's average price decreased by 3% year-over-year to $1.38M.

What is the cheapest place in Canada to live? ›

Sherbrooke is the cheapest city to live in Canada. If you're looking to save some money, this city in southern Quebec is 20.81% cheaper than Toronto and 13% cheaper than Montreal, for reference. Rent is also 68.36% lower than in Toronto, so you can definitely stretch your dollar further.

How much money do you need to live comfortably in Canada? ›

When we start factoring in the ability to save money as well as afford a few luxuries, the average cost of living comfortably in Canada for a single person is $2,771 per month. The average yearly salary needed is around $45,000. The amount needed for a couple is only slightly higher.

Are houses cheaper in Canada or USA? ›

The average price of homes in Canada is around USD550,723 compared to the US, where it's USD308,220. But this doesn't mean you won't find houses in Canada that are cheaper than those in the US. Homes are costlier in Canada due to low-interest rates, demand, foreign investors, and immigration.

Are Toronto house prices dropping? ›

Benchmark home prices in Toronto have fallen for five straight months—the largest decline in five years—by a total of 16% since March. In August alone, the benchmark price for a Toronto home dropped 2.8% to C$1.12 million (around $856,000), according to new data from the Toronto Regional Real Estate Board.

How much do house prices go up each year? ›

Looking at the graph below, we can see that house price growth remained strong during 2018 and 2019 with an average growth rate of 2% each year.

How is the Canadian housing market? ›

The Canadian housing market has done extremely well over the past few years. In fact, in 2020 and 2021, the country saw a record number of homes sold. According to the MLS Home Price Index, by the end of the year, prices were up nearly 25 percent from the previous year.

What is the average house price in Canada? ›

Canadian Cities Average House Prices April 2020
CityAverage House Price12 Month Change
Toronto, Ont$870,000+10.2 %
Ottawa, Ont$479,000+ 15.4 %
Calgary, Alb$410,000– 1.5 %
Montreal, Que$435,000+ 9.3 %
5 more rows

Will interest rates continue to rise in Canada? ›

MORTGAGE RATE FORECASTS

Locking in a 5-year fixed mortgage rate will only benefit you financially if variable rates continue to climb. Variable rates are expected to continue rising in 2022.

Will Canadian home prices drop in 2022? ›

This dynamic results in a 23% annual average decline in Canadian home sales in 2022 and a 12 per cent pullback in 2023.” Average home prices are projected to climb 3.2 per cent this year and tumble 8.1 per cent in 2023. Home sales are forecast to plunge 30.9 per cent in 2022 and 13.5 per cent in 2023.

Is Canada's housing bubble about to burst? ›

It all boils down to how fast the prices fall and interest rates rise. A bubble is more psychological than economic, and human behaviour is difficult to predict. While Canada's housing bubble is vulnerable to a recession, it might not burst in 2022. But it is better to be prepared.

Will Canadian house prices drop? ›

A report by TD Bank suggests the average price of a home in Canada could fall 20 to 25 per cent from its peak seen earlier this year to the first quarter of 2023. The report also estimates the number of home sales will fall 35 per cent over the same time period.

What will houses be worth in 2030 Canada? ›

By 2030, the price of a home will be 5% higher than the inflation adjusted value in 2020. The base case shows 5% growth over a whole decade, which is a big change from the past decade. The firm argues a home price correction “may cause some near-term pain,” but it's needed for a healthy economy.

Will mortgage rates go down in 2023 Canada? ›

The Bank of Canada is projecting it will take until early 2024 for inflation to subside and for rates to fall. However fixed mortgage rates that are correlated with the Bond Yield could start falling sooner, and if the economy slows faster than expected, we may see the Central Bank lower rates in 2023.

Why are housing prices so high in Canada? ›

Supply and Demand

In Canada, there are more people trying to buy houses than the amount of housing available to purchase. This low housing supply can cause a bidding war between buyers and allows the seller to sell the home for more than the asking price. This process creates higher prices in the real estate market.

Will Toronto House Prices Drop 2023? ›

House prices in Toronto and Vancouver were forecast to drop 8.5 per cent and 7.3 per cent in 2023 after surging 13.0 per cent and 10.6 per cent this year. “The pandemic may not be over but the pandemic-era housing market boom certainly is.

Will the housing market crash in 2023 Canada? ›

Latest Updates. Five respondents predicted a double-digit fall, as much as 18.2% next year. House prices in Toronto and Vancouver were forecast to drop 8.5% and 7.3% in 2023 after surging 13.0% and 10.6% this year. "The pandemic may not be over but the pandemic-era housing market boom certainly is.

What will happen if the housing market crashes? ›

Borrowers are discouraged from taking out loans when interest rates rise. On the other side, house construction will be affected as well; costs will rise, and the market supply of housing will shrink as a result.

What would cause the housing market to crash? ›

These bubbles are caused by a variety of factors including rising economic prosperity, low-interest rates, wider mortgage product offerings, and easy access to credit. Forces that make a housing bubble pop include a downturn in the economy, a rise in interest rates, and a drop in demand.

What is going on with the housing market in Canada? ›

Canada's housing market experienced a minor bump in prices for August 2022, the first monthly increase in Canada's average home price since February. For August 2022, the average home price in Canada was $637,673, up 1% from last month after decreasing on a monthly basis for five months in a row.

Do house prices drop in a recession? ›

How does a recession affect the real estate market? Recessions typically depress prices in most markets, including real estate markets. Bad economic conditions could mean there are fewer homebuyers with disposable income. As demand decreases, home prices fall, and real estate income stagnates.

How much do housing prices fall in a recession? ›

Nationally, Moody's Analytics expects year-over-year home price growth to be at 0%. However, if a recession hits, Moody's Analytics predicts significantly "overvalued" housing markets could see home prices drop by 15% to 20% while national home prices would fall by around 5%.

What will my house be worth 2030? ›

According to RenoFi, the average price of a single-family home in the U.S. could reach $382,000 by 2030. Depending on where you live, this figure may seem like a drop in the bucket compared to the home prices in your city.

When was the last housing market crash in Canada? ›

The 2022 Canadian property crash refers to a significant rise in Canadian real estate prices from 2002 to present (with short periods of falling prices in 2008 and 2017) which some observers have called a real estate bubble.

What happens when a housing bubble bursts? ›

Once speculators recognize that housing prices are on the rise, they enter the market as well, further driving up demand. The phenomenon is called a bubble because inevitably, at some point, it will burst. Typically, it bursts when interest rates start to rise again, wiping out demand.

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