Flippers continue to dominate the housing market, with resales just shy of new highs
Canadian home flippers remained unfazed by market challenges, as real estate flipping continued to be a lucrative venture for many investors.
The number of homes purchased and sold within 12 months held steady in the second quarter of 2024, barely shifting from near-record levels - 2.42% of homes sold were flipped (purchased and then sold again within a year), just 0.19 percentage points below the all-time high seen in early 2023, according to Better Dwelling, citing data from the Bank of Canada.
What’s notable is the speed at which some of these flips are happening. In the second quarter, 1.2% of homes were resold within six months of purchase, accounting for half of all flips. While slightly below the previous quarter’s record, it shows that flippers are acting quickly, despite a slower overall market.
Home flipping involves buying a property with the intention of selling it quickly for a profit. Some flippers renovate and add value to properties, while others are more speculative, hoping to capitalize on rising home prices.
Over the past decade, speculative flipping has played a significant role in driving up housing demand in tight markets, especially in cities like Toronto and Vancouver.
In 2023, Canada introduced a rule that defined flipping as buying and selling a home within 12 months. The proceeds from such sales are now treated as business income rather than capital gains, which subjects the seller to higher taxation. While the policy was aimed at discouraging speculative flipping, it hasn’t had a noticeable impact on curbing the activity.
The persistence of flipping activity, even as the housing market cools, is tied to a combination of falling mortgage rates and investor-friendly policies.
“Traditionally, falling rates are a sign of a weak economy, a by-product of the eroding financial stability of households and a rising unemployment rate,” Better Dwelling wrote in the report. “It doesn’t matter how cheap credit is if an end-user doesn’t have a job. That’s why most price corrections occur while rates are falling, such as the correction in the early 90s and the US in 2008. This is less important as investors replace end-users in the market.”
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While rate cuts often signal economic uncertainty, flippers see it as an opportunity. Lower borrowing costs make it easier for investors to finance properties, and recent policy incentives have only added to the appeal.
“Investors tend to be less sensitive to employment trends. They’re also better capitalized and positioned to disproportionately capture cheap credit,” the report read. “Combine that with policymakers outright stating they’re attempting to preserve the recent frothy gains while granting more investment incentives, and they have a good reason to believe the market will work in their favor.”
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