Who’s Buying Houses During the Pandemic?

Written by Posted On Tuesday, 26 October 2021 00:00

Despite soaring real estate prices and a thin inventory of  homes for sale across Canada, sales are trending up again after a summer lull. Demand is strong and multiple offers on homes are common. Who is buying all these homes? The answer appears to be everyone.

A new report by Teranet took a close look at who is buying homes in Ontario, dividing buyers into classifications such as first-time buyers, multi-property owners (including investors and people who are buying recreational properties), movers (selling their existing property and purchasing another one), those impacted by life events (death, marriage, divorce, transfer between generations for nominal value) and others, which include buyers from outside Ontario or Canada.

From January to August 2021, multi-property owners represented about 25 per cent of all purchases. This category of buyers has been increasing steadily since 2011, when it made up just 16 per cent of the market. The “other” segment of buyers, which started at the top in 2011, has been dropping. The report says this can be attributed to the introduction of the Non-Resident Speculation Tax in 2017 “and exacerbated in recent months, likely by the pandemic, which curbed immigration as well as international students settling in the province.”

The movers segment has always been the smallest category, representing 15 to 18 per cent of title changes, says the report.

“First-time homebuyers have consistently been a strong buyer segment that saw a slight dip in the relative share of transactions starting in 2016, the year that the mortgage stress test was first introduced,” says the report. That group currently is the second-highest category, with about 22 per cent of the market.

But affordability challenges for first-timers has also had an impact on the life events category of buyers, “which could be attributable to transfers of wealth between generations,” says the Teranet report.

That supports information from CIBC that says almost one in five first-time buyers are getting financial help from relatives, with an average gift of $150,000.

Benjamin Tal, deputy chief economist at CIBC, told the Globe & Mail’s Rob Carrick, “Parents are encouraging kids to get into the market to take advantage of extremely low interest rates and they’re saying, you know what, we’ll help.” Tal says gifts from relatives may be one of the reasons why house prices are being driven up so quickly.

During the pandemic, Teranet says all of the buyer categories have responded the same way, with peak activity happening in October 2020 and peaking again in June 2021. “These observations stand to nullify some of the emphasis in media headlines of urbanites moving to the suburbs and rural communities,” says the report. While there was an increase in activity in those areas compared to past years, the flight to the suburbs “explained only part of the pandemic market boom,” in those areas, says Teranet.

In Toronto, which represents 17 per cent of total property transfers from January 2011 to August 2021, first-time buyers and multi-property owners each accounted for about a quarter of activity, says Teranet. “This speaks to Toronto’s continuing appeal to investors as well as the younger generation, which predominantly make up the first-time buyers’ segment,” says the report.

 

“Those seeking a second or third home in the property lifecycle are less likely to prefer Toronto. In fact, the percentage of Toronto transfers attributable to the movers segment has declined from 12 per cent in 2011 to under 10 per cent,” Teranet says.

The report also took a look at the age of buyers during the pandemic, from January 2020 to August 2021. In the multi-property category, 32 per cent are from generation X, with millennials representing 22 per cent of sales and baby boomers accounting for 16 per cent. Another 26 per cent of transactions are “mixed”, crossing generations with more than one purchaser.

“As a further deep dive, 2020 saw a 13-per-cent year-over-year growth in ages 35-40 and 40-45 making multi-property purchases,” says the report. “Over 60 per cent of multi-property owners purchases represent the second property in the portfolio and another 20 per cent were for the third property in the portfolio.”

Millennials make up 67 per cent of first-time buyers, with 11 per cent in generation X and 17 per cent in mixed generations. Millennials are also tops in the movers category at 31 per cent, followed by generation X at 28 per cent and baby boomers at 17 per cent.

Who is spending the most for their properties? In Toronto in August 2021, movers spent an average of $1.3 million, with the “other” segment spending an average of $917,000.

“Multi-property owners spent only $874,000 on average, likely skewed downward by more condo properties in the mix in Toronto,” says the report. “First-time homebuyers spent $761,000 on average on their Toronto purchases.”

A recent Statistics Canada analysis looked at buyers in the provinces of British Columbia, Nova Scotia and New Brunswick in 2018. It found that first-time buyers had higher incomes than repeat buyers in B.C., but the opposite was true in the Atlantic provinces.

It also found that in New Brunswick 35 per cent of buyers purchased their property on their own, compared to 25 per cent single buyers in B.C., where the properties were almost four times more expensive. The report also says immigrants purchased more expensive properties compared with non-immigrants. 

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Jim Adair

Jim Adair is editor of REM: Canada's Real Estate Magazine, a business publication for real estate agents and brokers. He has been writing about Canadian real estate, home building and renovation issues for more than 30 years. You can contact Jim at jim@remonline.com.

www.remonline.com/

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