CMHC report reveals bidding wars for condominiums, big price hikes
It’s what CMHC is calling the “most thorough examination of house price patterns” ever done of the housing market in the country’s five largest cities, including Vancouver.
Canada Housing and Mortgage Corp. on Wednesday released a 225-page report called Examining Escalating House Prices in Large Canadian Metropolitan Centres. It was completed to better understand how much prices rose between 2010 and 2016 (in Vancouver, a lot), factors that drove the hikes, why the hikes are important and what can be done about them.
1. Housing got more expensive
House prices jumped 48 per cent between the 2010 Winter Olympics and 2016 in Vancouver, the leader in increases among Toronto (40 per cent), Montreal, Edmonton and Calgary.
CMHC said its analysis showed demand was driven by conventional economic factors — a strong economy, growing population and low mortgage rates.
The report said between five and 10 per cent of Vancouver’s market is owned by non-resident investors.
“Foreign investment increased demand,” said CMHC deputy chief economist Aled ab Iorwerth.
He also said “The supply response (to the rising overall demand) has been relatively weak in Vancouver and Toronto,” but there were “data gaps” that precluded researchers from determining why.
Calgary and Edmonton responded to their demand by “sprawling horizontally,” Iorwerth said.
2. What were first-time buyers buying?
In Metro Vancouver, the study found first-time buyers were spending on average almost $550,000 on their first homes. That compared to $957,000 for buyers who weren’t buying for the first time. In Toronto, the amount first-time buyers were spending was almost $595,000 and in Montreal it was $308,000.
3. Lots of bidding wars
For the first time, CMHC sent out a survey to gauge Canadian homebuyers’ “behavioural economics,” or what social pressures and influences they felt to buy real estate.
The questionnaire was sent out to 30,000 homebuyers in Vancouver, Montreal and Toronto who purchased a home in the previous 12 months and it was completed by more than 2,200, enough for a “statistically sound analysis.”
That is, how they’re influenced to buy (family and friends was tops, followed by realtors, builders, media and government), how much they think the market will grow in the short term (not one thought the value of their purchase would fall within the first year) and long term (long-term price expectations are in line with past market returns) and how willing they were to get into a bidding war.
It found 53 per cent of buyers in the Vancouver market got in a bidding war for their purchase (mostly condos) and 47 per cent of Vancouver buyers paid more for their home than they intended.
4. Demand for investment properties is up
The report also found an increase in investor demand for condos, which has increased rentals but the newer units “tend to be more expensive than units from existing purpose-built rentals.”
Iorwerth said “all levels of government” have to work on solutions to the lack of affordable housing.
The Canadian Federation of Apartment Associations called for a review of tax policy “and how it favours home ownership over renting,” its president, John Dickie, said in a release.
“And second, (governments must) address the need for more purpose-built rental housing for the people who cannot afford the rising price of home ownership,” he said.
Dickie said Ottawa needs to implement “financing alternatives, tax reforms or other incentives.”
5. Number of females reporting rental income rises
In 2010, more males reported rental income on their tax returns, although it was just marginally so in Vancouver, with 51 per cent of males reporting rental income.
But the growth in the number of females reporting rental income rose rapidly between 2010 and 2014, particularly by 28 per cent in Vancouver, according to CMHC.
The percentage of male tax filers reporting rental income in Vancouver dropped to 23 per cent.
“Overall, the difference in rental shares that existed between male and female tax filers before 2010 had largely disappeared by 2014,” it said.