Average home costs are up 30% since before the pandemic, a spike CMHC links to speculative investors

Canada’s housing agency is concerned about speculative investing in residential real estate, saying it is contributing to the froth in the market and pushing home prices higher.

“What worries me is the role of speculative type investors and the kind of market we have seen over the last year,” said Bob Dugan, the chief economist at the Canada Mortgage and Housing Corporation (CMHC).

The average home price across the country is 30 per cent higher than before the pandemic, with smaller cities and semi-rural areas experiencing record price increases.

In less than two years, the average price of a home is up 167 per cent in Ontario’s Bancroft region. Home prices have almost doubled in other parts of the province, such as North Bay, as well as in communities in Atlantic Canada such as Cape Breton, according to Canadian Real Estate Association data.

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Buyers are trying to get into the housing market and have increasingly turned to cities and regions that were once considered affordable or to condos, which typically have a lower purchase price. That includes preconstruction condos, where the buyer is initially only on the hook for a relatively smaller down payment.

“Prices are going up, and investors that are speculating on the increase in price are adding to the demand pressures because some of them are buying these homes,” Mr. Dugan said. “That is something that worries me because that adds extra froth to the market, pushes home prices higher and can create a harder landing if and when the market turns and prices correct.”

The CMHC has already warned that the country’s housing market is overvalued and vulnerable to a price correction. It has identified six major metropolitan areas at risk of a downturn: Montreal, Hamilton, Toronto, Ottawa, Halifax and Moncton.

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Mr. Dugan’s comments came one day after the Bank of Canada singled out domestic investors for the first time as a potential problem in the housing market. The central bank said they have likely contributed to the rapid rise in home prices.

“That can expose the market to a higher chance of a correction. And, if one occurs, the damage can spread far beyond the investors,” the bank said.

The Bank of Canada found that investor buying has doubled over the past year, whereas purchases by first-time homebuyers have risen about 45 per cent. The bank also expressed concern about high levels of household debt and the quality of borrowers; in particular, it is concerned that highly indebted households are borrowing at a faster pace.

The bank is doing more research on this topic and said it will look at the types of investors buying homes during the pandemic and whether investors are more sensitive to price changes than other homebuyers. As well, it said it would look at what impact the increase in investor buyers might have on the home resale and rental markets.

The CMHC has long said that investors who rent out properties – as opposed to those speculating on price appreciation – have a positive effect on housing availability.

Mr. Dugan said: “Many investors play a very, very positive role in the housing market. The investors that take a unit and turn it into a rental property – that has been an important source of rental supply and that is a very good thing.”

Condo rentals are key in the Toronto region, which has suffered from a lack of apartments or rental housing units.

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