First-time homebuyers facing pressure from existing homeowners

Author: Sleep Easy Financial | | Categories: First Time Home Buyer Mortgage , Mortgage Agent , Mortgage Broker , Mortgage Pre-Approvals , Mortgage Rates , Mortgage Services


This week's Bank of Canada (BoC) research showed that first-time buyers are increasingly unable to get their foot in the housing market's door, facing high prices and intense competition from investors and repeat buyers.

The share of home purchases by first-time buyers fell by 3 percentage points since the start of the pandemic, reaching a new low in mid-2021 at 46.8%, down from 49.8% at the start of the pandemic. Historically low variable rates on mortgages are boosting demand for real estate. In recent months, more than 50% of new mortgage borrowers opted for a variable rate mortgage (TD Economics).

The following is key excerpts from the Bank of Canada report: Housing demand in Canada: A novel approach to classifying mortgaged homebuyers

The Bank of Canada released a new study where, for the first time, it classified homebuyers into three distinct groups: first-time buyers, repeat buyers, and investors. 

BoC identified first-time homebuyers by the first-ever appearance of a mortgage on a borrower's TransUnion credit file. First-time homebuyers are the largest group of homebuyers, accounting for one half of home purchases since 2014 (Chart 2).

For a purchaser to be classified as a repeat homebuyer, the issuance of their new mortgage must also be associated with the discharge of a previous mortgage. Repeat homebuyers have accounted for 31% of home purchases since 2014.

The investors category represents homebuyers with multiple mortgaged properties. This means investors are homebuyers who either:

  • purchase an investment property while maintaining their primary residence, or
  • purchase a new residence to live in while converting their existing residence into an investment property.

Since this data set included only mortgages originated by Canadian financial institutions, BoC captured mostly domestic buyers. Purchases from foreign buyers are included only if the buyers obtained a mortgage in Canada. Under these parameters, investors have accounted for 19% of mortgaged home purchases since 2014.

Housing investments here may include the purchase of recreational properties, such as cottages. However, their inclusion does not alter BoC's results in a material way. Specifically, BoC looked at investors residing in 11 major cities in Canada (Chart 5) and find that their purchases in non-urban areas account for only 4% of all of their investment purchases since 2014. While small, this share has increased over time, from about 3% in 2014–15 to about 5.5% in 2020–21.

Homebuying patterns over time

Next, BoC examined how home purchases from the three different groups have evolved over time. Chart 3 shows a high degree of co-movement in the growth rates of these groups’ home purchases. Interestingly, while purchases from all three groups have seen a rapid increase during the COVID‑19 pandemic, this is most pronounced for investors. The last time growth in the investor category outstripped that of first-time or repeat homebuyers was in 2017—during a period of exceptionally strong house price gains in Toronto and surrounding areas.

As a result of these dynamics, the share of purchases by investors rose in 2017 and then again in 2021 (Chart 4). Currently, investors account for just over one-fifth of home purchases in Canada. Repeat homebuyers have also seen their share of activity increase slightly over time. In contrast, the share of purchases by first-time homebuyers has declined since 2015, reaching a new low in 2021; in the same six-year period, home prices have risen much faster than disposable income.

Concluding remarks

BoC created a new dataset for tracking home purchases associated with Canadian mortgages. The main advantage of this dataset is the ability to break down home purchases into the relative contributions of different types of homebuyers. A key insight to emerge from their initial analysis is that home purchases are being driven increasingly by existing homeowners. Within this group, investors have seen the largest gain in their share of home purchases during the COVID‑19 pandemic.

The increased presence of investors in the housing market has contributed to strong demand and may reflect a belief that house prices will continue to rise in value. Investors’ demand for housing may also be more sensitive to shifts in market sentiment than that of other homebuyers. By exacerbating so-called boom-bust cycles in housing markets, investors could thus be a source of instability for the financial system and the economy more broadly. At the same time, investors are an important source of housing rental supply. BoC needs to do further research to examine the delicate balance between adding to rental supply while removing new builds and resale supply in a housing market that already has supply constraints.

More generally, BoC's dataset has the potential to help answer many questions about household indebtedness and housing market imbalances, including the role of housing investors. This is an area of active research for the bank.


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Original Article Source Credits:  Bank of Canada,

Original Article Posted on:  January

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