Who are Canada’s real estate investors, and where are they buying?
A new report by Statistics Canada reveals insights into Canada’s real estate investors.
With demographic statistics published in the report titled “Housing Statistics in Canada,” these insights paint a picture of investors throughout Ontario, British Columbia, Manitoba, Nova Scotia, and New Brunswick for the 2020 reference year, highlighting each demographics’ role in the housing market.
Here are some key takeaways.
PROVINCE INVESTOR DIFFERENCES
Statistics Canada notes that Nova Scotia, New Brunswick and British Columbia represented the highest volume of out-of-province and non-resident investors in 2020.
Nova Scotia, for instance, had 3.8 per cent of their investors deriving from outside of the province in 2020. Similarly, New Brunswick had 3.0 per cent, while British Columbia had 2.7 per cent of out-of-province investors.
Leah Zlatkin, a mortgage broker and corporate strategist with Mortgage Outlet Inc., notes that the data, emerging before recent interest rate hikes and developments in inflation, represents a very different housing market.
“A lot has changed” since 2020, she told CTVNews.ca in a phone interview on Wednesday. “I don’t know if we can really base this on the profile of existing investors.”
But Zlatkin also explained that 2020 trends reflecting out-out-province investors in the East Coast remain relevant to the current housing market.
“For many Ontario investors who want to get into the market with a second or third home in the course of the last two or three years, the East Coast has been really cheap in terms of property values,” she said. “So it’s been a really good opportunity to buy properties out there and still be renting them for the same cost as properties in the [Greater Toronto Area].”
The data revealed that, compared with other types of investors, out-of-province investors earned the highest average incomes in all five provinces assessed. In most provinces, however, investors who owned vacant land in addition to a primary residence had an average annual income that was similar to people who were not investing in real estate.
In New Brunswick, 1.6 per cent of in-province investors owned three or more properties. This was one end of the housing stock range, which saw 2.9 per cent of Ontario investors owning three or more properties in their province.
“For Nova Scotia and New Brunswick [the volume of out-of-province investors] makes a lot of sense,” Zlatkin said. “Property values in Nova Scotia are so much less. You could rent out the properties for a good amount… You could buy a rental property in Nova Scotia or New Brunswick for two, three hundred thousand dollars in the last two years. And you could rent that same property out for two thousand dollars [per month].”
In Ontario, Zlatkin explained, to buy a property that you could rent out for $2,000 you would need to pay upwards of $500,000 or $600,000. “When you look at how much is required and what kind of mortgage you’d need to qualify for, it makes a lot more sense to buy out east.”
Zlatkin also explained that managing properties when you live out of the province would be much more difficult. However, “if it’s a smaller value property, the risk is not as high.”
IMMIGRATION INVESTORS COMPARED TO CANADIAN-BORN INVESTORS
Statistics Canada also reported that established immigrants – meaning those who arrived in Canada before 2010 – were more likely to be investors than their proportion in the population. British Columbia, for instance, found immigrant investors carried an average property value totalling $2,200,000. This compares to Canadian-born real estate investors who had an average assessed value standing at $1,610,000.
Similarly, in Ontario, the average assessed value for immigrant investors was $1,290,000 and $890,000 for Canadian-born investors.
According to Statistics Canada, a major reason for these value discrepancies derived from the fact that immigrant investors were “more likely to own a primary residence in a larger census metropolitan area.” In highly populated cities, property assessment values are “generally higher compared to other parts of the provinces,” Statistics Canada explained in the report.
Zlatkin believes a major factor is the competitive process of immigration in the country, which leans towards welcoming newcomers with high education and high-paying job eligibility.
“When you look at how we allow immigration to happen in Canada, most people who are immigrating into Canada are extremely well educated,” she said. “They come in with a lot of credentials. People [who immigrated] are [often] very employable if they don’t already have employment. They may also come from situations where they were previously doing well in their home country and they may have family members who are still doing well in their home country.”
Zlatkin explained that there is a lot of asset opportunity for those with an existing income or those who have financial backing, either from an incoming job or from family.
INDIVIDUAL INCOME AVERAGES AND INVESTOR AGES
The report also found that disparity in incomes was more significant in B.C., and Ontario.
In B.C., Canadian-born investors had an average individual income of $105,000 in 2020, with immigrant investors carrying an average individual income of $80,000.
The same average income ($80,000) was traced to immigrant investors in Ontario, where as the average individual income for Canadian-born investors in the province was $100,000.
Notably, Nova Scotia and New Brunswick were the only provinces out of the five that showed immigrant investor incomes higher than the individual incomes of Canadian-born investors.
In Nova Scotia, immigrant investors earned an average annual income of $75,000, while Canadian-born investors earned $65,000. In New Brunswick, the average individual income of immigrant investors stood at $65,000 in 2020, while Canadian-born investors earned an average of $60,000.
“When you look at the average income here, most of these people wouldn’t qualify for two or three homes,” Zlatkin said, explaining key differences with the housing market of 2020.
Along with showing that residents aged 55 and older represented a “higher proportion of investors than their share of the provincial populations,” the report explained that Canadians 35 and younger averaged 5 per cent of total property investors in 2020.
Zlatkin called this “shocking.”
“I’m shocked because most people under 35 don’t have enough income to qualify for these mortgages,” she said.
Zlatkin mentioned that this could be a result of generational wealth, financial cushioning from families, and shifts in lifestyle focus for younger investors.
Zlatkin said this trend could reflect an increased demand for millennials to have better work life balance – a luxury afforded to real estate investors who rent out properties and only have to maintain them in order to incur wealth.
To rent out multiple properties you actually “could acquire quite a bit of wealth and it’s long-lasting throughout your entire lifetime,” she said.
“For a millennial who has the money or has generational wealth it makes sense that young people are incredibly incented to buy.”
With files from CTVNews.ca’s Jesse Tahirali
Elon Musk Warns Homeowners About the Value of Their Homes – TheStreet
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Elon Musk Warns Homeowners About the Value of Their Homes TheStreet
Elon Musk says home prices will tumble ‘next’—Redfin’s CEO disagrees – Fortune
There’s no doubt about it: Things aren’t looking so great for commercial real estate, especially for office space.
Look no further than a revised forecast issued earlier this month by a group of researchers from New York University and Columbia University, which predicts that office values in New York City alone will plummet a staggering 44% by 2029. That’s much steeper than the group’s prior prediction—issued a year ago—for NYC office values to fall 28% by 2029.
The stickiness of remote work, coupled with interest rates spiking just as many commercial real estate loans come due, is the underlying source of the commercial real estate bearishness. However, at least in the eyes of Tesla CEO Elon Musk, property declines will soon spread beyond commercial real estate.
On Monday, Musk insinuated that pain awaits the residential housing market when he tweeted that “Commercial real estate is melting down fast. Home values next.”
But the loss in demand for commercial real estate is what’s driving demand for residential real estate. People who work from home need more space at home. Sales volume is down because inventory is down. Today, home prices increased for a second straight month.
— Glenn Kelman (@glennkelman) May 30, 2023
Musk didn’t say how much he thinks U.S. home prices will fall—nor did he explain why. He also got some pushback.
On Tuesday, Redfin CEO Glenn Kelman shot back at Musk, tweeting, “But the loss in demand for commercial real estate is what’s driving demand for residential real estate. People who work from home need more space at home. Sales volume is down because inventory is down. Today, home prices increased for a second straight month.”
The idea that remote work has boosted home prices during the pandemic is supported by research published last year by researchers at the Federal Reserve Bank of San Francisco. The San Francisco Fed paper argues that upwards of 50% of Pandemic Housing Boom gains through November 2021 can be attributed to an elevated demand for “space” created by the pandemic’s remote work shift.
“Our results suggest that rising house prices over the pandemic reflected a change in fundamentals rather than a speculative bubble. This implies that the evolution of remote work may be an important determinant of future housing costs and inflation,” wrote the team of San Francisco Fed researchers.
So who is right, Kelman or Musk? The industry is fairly divided.
While national home prices have fallen a bit—down 2.2% from June 2022 according to the seasonally adjusted Case-Shiller National Home Price Index—they aren’t crashing broadly. Some markets like San Francisco (down 12.9% from its 2022 peak), Phoenix (down 8.4%), and Las Vegas (down 9.0%) have fallen sharply. However, many places in the Midwest, like Chicago, and along the East Coast, like Miami, are still near all-time highs.
Economists at firms like Zillow and CoreLogic argue that national home prices have bottomed, while firms like Moody’s Analytics and Fannie Mae think that national home prices—which rose on a month-over-month basis in February and March according to Case-Shiller—will soon flip back into correction.
Want more housing data? Follow me on Twitter at @NewsLambert.
Why Elon Musk sees house prices, commercial real estate values falling – Markets Insider
- Elon Musk warned this week that commercial real estate is in meltdown and house prices will slump.
- The Tesla chief blamed the Fed’s interest-rate rises for putting pressure on property values.
- Musk has explained that higher rates mean bigger mortgage costs, making homes less affordable.
Elon Musk sounded the alarm on US house prices and commercial-property values this week. The billionaire’s warning reflects his fear that the Federal Reserve is strangling the economy and threatening to cause a needless recession.
“Commercial real estate is melting down fast,” the Tesla, SpaceX, and Twitter CEO tweeted on Monday. “Home values next.”
Interest rates and real estate
The root of Musk’s concerns is the Fed. In response to historic inflation, the US central bank has raised interest rates from virtually zero to upwards of 5% since last Spring.
Higher interest rates encourage saving over spending and make borrowing more costly, meaning they’re often bad news for asset prices and economic growth. They tend to pull down real estate prices because they raise mortgage payments and financing costs, leaving less money to buy homes with, or invest in offices and restaurants.
Steeper rates also erode the relative appeal of real estate to investors because they boost the yields from bonds and savings accounts.
Moreover, after mass withdrawals of customer deposits caused major problems at several banks this year, smaller lenders are pulling back in fear of further bank runs, raising the prospect of a credit crunch. They may also be more wary of lending given the prospect of a recession, pressure on their asset portfolios, and the increased risk of loan defaults when rates are higher.
The shift to remote working since the pandemic also poses a threat to commercial real estate values. Fewer commuters depresses occupancy levels in office buildings, and also affects traffic for commercial sites such as shopping malls and entertainment venues, making them less profitable bets for investors.
A painful mix of downward pressure on asset prices, higher borrowing costs, and tighter lending by regional banks is especially bad news for the commercial real estate industry, which is heavily reliant on debt financing from smaller lenders.
The Tesla chief has been making dire predictions about real estate for several months now.
“We really haven’t seen the commercial real estate shoe drop,” Musk said on Fox News’ “Tucker Carlson Tonight” in April. “That’s more like an anvil, not a shoe.”
The billionaire argued the damage to real estate portfolios has been minor, but would become a serious problem in the coming months as customers cancel their leases, decline to renew them – or go bankrupt.
Moreover, he said that house prices were likely to decline as some Americans couldn’t afford to pay as much for homes due to higher mortgage costs.
Musk has also weighed in on the vast amount of real estate debt expiring over the next five years, and homeowners facing a sharp rise in monthly payments once their fixed-rate mortgages end.
“This is by far the most serious looming issue,” he tweeted in March. “Mortgages too.”
The Tesla CEO zeroed in on the housing market’s challenges, and what they could mean for banks, earlier this month.
“The massive jump in monthly payments for a 30-year mortgage, due to high interest rates, obviously greatly reduces home affordability,” Musk tweeted. “Mortgage portfolios are at risk if housing prices drop significantly.”
It’s worth emphasizing that Musk stands to gain if real estate prices tank and the Fed cuts rates in response.
He’s complained that higher rates effectively raise the price of Tesla vehicles, as they translate into larger monthly car-loan payments for consumers. As a result, Tesla has to cut its prices just to maintain demand, he said.
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