Multi-property owners: are challenges ahead?

As the affordability crisis in Canada’s housing market grows, how have the nation’s homebuyers been paying for their home purchases?

A new survey has revealed that nearly one-fifth of pandemic-era buyers own multiple properties – with around the same percentage of first-time buyers relying on gifted money to afford their home.

The study, conducted by RATESDOTCA with BNN Bloomberg, surveyed 1,547 respondents from January 07-09 and found that homebuyers broadly fell into three categories during the pandemic: new buyers, those who already owned a home and were seeking to upsize or downsize, and multi-property owners.

The latter, according to RATESDOTCA’s managing editor John Shmuel, often keep their starter home for rental income or other purposes, a trend that appears to have grown during the COVID-19 era.  

“The multi-property buyers also encompass those who move from their existing place and then buy a new home, but may keep that previous home that they lived in,” he told Canadian Mortgage Professional, “where in the past they might have sold that and leveraged that equity into their new property, or cashed out a bit and put it into the retirement fund.

“We know that multi-property buyers are increasing, and it’s safe to say that within this segment of buyers, keeping existing properties has grown larger during the pandemic.”

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Shmuel said that conversations with mortgage brokers suggested that trend was especially popular among those who were upgrading from a condo to a semi-detached or detached house.

It could also be exacerbating the supply crisis that’s currently gripping Canada’s housing market, with properties now being rented out instead of put up for sale.

“On one hand it’s adding to the rental stock; on the other, it’s contributed to this dearth of listings that has made it harder and more competitive for first-time homebuyers to get into the market,” Shmuel said. “That’s anecdotal; that’s what we’re hearing from our mortgage broker partners.”

Among the unsurprising effects of that lack of inventory has been the seemingly unstoppable rise of house prices across the country, particularly in the hottest markets of its large cities.

That, in turn, has contributed to the growing trend of new entrants to the market relying on gifted payments from family members to fund their down payment.

Nineteen per cent (19%) of first-time buyers said they had tapped into the so-called “Bank of Mom and Dad” to make that payment, although Shmuel emphasized that since the survey was a cross-country one, that figure was likely higher in cities like Toronto and Vancouver.

“One in five [first-time] homebuyers are getting gifts from their down payment, but it’s definitely significantly higher in expensive markets,” he said. “Looking at a place like Toronto, where the average home price for all properties is in that $1 million mark, it’s very hard to come up with down payment on your own.

“You’re either saving for years and years, or you’re leveraging whether your parents have that money that they can give – or they’re leveraging their own existing home equity to help with that down payment.”

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That growing trend of multiple property owners opting to rent out their starter home was likely fuelled by the rock-bottom interest rates that have remained throughout the pandemic, stabilizing payments for those who already own.

Still, the question of how many Canadians potentially put themselves in a financially precarious situation to be able to hold both properties is a pertinent one, Shmuel said, particularly with the economic landscape still shrouded in uncertainty.

Using a starter home for rental income means multiple homeowners are reliant on tenants’ payments – a fact that could present considerable risk in the event of a market downturn or other eventualities.

“How many of those that kept their first property could maybe survive six months making payments on their property without a tenant if the rental market does what we saw in 2020?” he said.

“My other question would be if prices do come down and they have to sell it – how much does that affect things like your plans for future retirement? I worry how many buyers that kept their first property did so with a strong financial cushion to survive the bad things that can happen in a soft real estate market.”