Canadian Real Estate Hot-Pockets Fuelled by Investors, Seasoned Buyers

Since the Bank of Canada (BoC) started raising interest rates in the spring of 2022 at a time of post-crisis sky-high home prices, first-time homebuyers have sat on the sidelines amid a housing affordability crisis. They have been waiting to dip their toes in the Canadian real estate market in this span. However, two groups of buyers have taken advantage of the current housing environment: seasoned buyers and investors.

Seasoned homebuyers and investors have driven many “hot pockets” of the Canadian real estate market in the first half of 2024, according to the findings of a new RE/MAX Hot Pocket Communities study.

What were some of the chief findings in the widely watched report? Let’s dig deeper.

Investors, Seasoned Homebuyers Fuelling’ Hot Pockets’ of Canadian Real Estate Market

The report revealed that experienced buyers and investors fuelled price gains for detached homes in places like the Greater Toronto Area (GTA), the Greater Vancouver Area (GVA), and Fraser Valley. Put simply, they have buoyed price gains of approximately 40 percent in 83 surveyed local markets and boosted sales by 30 percent in the first six months of the year.

Unsurprisingly, detached housing in various neighbourhoods in the Toronto real estate market recorded substantial gains in both prices and sales, such as Forest Hill, Trinity-Bellwoods, Dufferin Grove, and Little Portugal. Typically, the report says, downtown and midtown communities have been “a perennial favourite with purchasers in Toronto.”

“Chronically undersupplied micro-markets in Toronto’s downtown/midtown are experiencing healthy demand, with multiple offers a frequent occurrence,” the report stated. “Unlike 2021/2022, accepted offers were rarely over list price.”

The vast 905 part of the GTA also enjoyed upward movements in transaction activity and prices, with Durham, Halton, and York Regions posting “an upswing in average price.”

Conversely, price appreciation was rampant in the GVA and Fraser Valley real estate markets amid tight supply. According to the study, more than two-thirds (70.6 percent) of Greater Vancouver neighbourhoods witnessed median price gains for detached homes. Comparable trends were also evident in Fraser Valley communities, such as Burnaby, Port Coquitlam, and Squamish.

“While affordability remains the top obstacle for first-time homebuyers, more experienced buyers and investors are taking advantage of softer housing values, making their moves ahead of the Bank of Canada’s (BoC) end to quantitative tightening,” said RE/MAX President Christopher Alexander in the report.

“Pent-up demand continues to build, with an estimated 20,000 to 25,000 buyers currently lying in wait in the GTA, and another 5,000 buyers in the Greater Vancouver area ready to pull the trigger. The first interest rate cut in June did little to incentivize buyers, but early indications show the second may have struck a nerve.”

The Bank of Canada (BoC) has lowered benchmark interest rates from the more than two-decade high of five percent. This has produced a spillover effect in the mortgage market because the five- and ten-year government bonds have slipped since the central bank signalled that more loosening of monetary conditions would occur in the coming months.

What are the three notable trends identified in the class of veteran homebuyers and investors? Here is a breakdown:

• Homeowners took advantage of the modest price dip to trade up from their principal residence.
• Taxes were a significant hurdle for residents and non-residents, mainly because of the vacancy levies.
• Investors are upscaling their primary homes because of the recently imposed capital gains tax hike.

Will First-Time Homebuyers Return?

The economic climate has been rough for middle-income households looking to buy Canadian real estate, be it a single-family home, a townhouse or a condo apartment. Be it cumulative across-the-board inflation, higher home prices, or six percent mortgage rates, purchasing a home in many of these markets has been incredibly difficult.

However, while it might appear that current homeowners, multiple property owners, and investors are dominating the Canadian real estate sector, experts predict that first-time homebuyers will gradually re-enter the market. At the same time, the plethora of hurdles could temper re-entry, warns Alexander.

On the one hand, the federal government’s latest announcement of extending the amortization period from 25 to 30 years would be a key benefit for homebuyers as it would alleviate housing costs. On the other hand, the substantial price gains in various housing markets nationwide would offset the benefits.

“That said, all boats rise with the tide – once the first-time buyers segment gains greater traction, we should see a ripple effect,” he stated. “We’re not there quite yet, but the tide is beginning to turn.”

Ultimately, a key hurdle for Canada to overcome is a United States recession. Although various economic data points suggest that the world’s largest economy will avert a downturn this year, the financial markets have braced for a contraction, with the three-day market crash in early August serving as evidence of widespread recession concerns.

“With closely tied economies, Canada is not insulated, so expect buyers to stay tuned to any possible economic headwinds,” Alexander added.