Investors make a fifth of home purchases in Halifax, where real estate prices continue to soar

New research from the Bank of Canada shows investors account for about a fifth of home purchases in Halifax.

It offers insight into a real estate market whose prices have skyrocketed recently, making it impenetrable for some potential homeowners.

Using financial credit databases, researchers at the country’s central bank determined the proportion of home mortgage purchases made by first-time homebuyers, repeat homebuyers and investors. Bar house purchases are not part of the settlement.

The bank has released similar information in the past, but never with a breakdown that included details specific to Nova Scotia. A report released this month includes figures for 11 of the country’s largest cities, including Halifax.

The report shows that investors accounted for about 19 percent of mortgage-backed home purchases in Halifax in the second quarter of 2021. That’s just below the Canadian average for the same period, which was 21.6 percent.

Big jumps in home prices, two years in a row

The report provides context, but doesn’t directly answer the question to what extent investors are to blame for the rise in house prices.

In Halifax, the average home sale in 2021 was 26 percent higher than the year before and 14 percent higher in 2020 than the year before, according to statistics from the Nova Scotia Real Estate Association.

Investor activity has increased in most major Canadian cities in recent years, but Halifax has seen one of the biggest jumps.

Since 2014, investor purchases in Halifax have increased by more than 4 percent, surpassed only by Ottawa’s 5 percent growth.

First-time homebuyers hold a declining share

The report doesn’t break out the other two homebuyer categories by city, but shows national trends.

In general, first-time home buyers make up the lion’s share of home purchases, but that number has been declining since at least 2015 and more dramatically since around 2020. In second place are repeat homebuyers, whose share has been growing since at least 2015.

The report’s authors suggest that the surge in investor activity in Canada overall “has contributed to strong demand and may reflect belief that home prices will continue to appreciate — sometimes referred to as extrapolative expectations.”

They also point out that investor demand may be more sensitive to changes in market sentiment, thereby exacerbating boom-bust cycles.

“Investors could thus be a source of instability for the financial system and the wider economy.”

Many factors play a role in the real estate crisis

Real estate analyst Neil Lovitt said he looks at the central bank’s results in two different ways. On the one hand, it is potentially problematic that investors and repeat buyers are taking ever larger market shares.

“It’s interesting, and of course worrying, to see the increase in this activity relative to the decrease in people who I think we would consider more likely to be deserving buyers — first-time home buyers, people looking for homes for the first time,” said Lovitt, Vice President of Planning and Business Development for the Halifax office of Turner, Drake and Partners.

On the other hand, he said he found the magnitude of the impact, particularly from investors, “underwhelming” compared to the impact some people assume they’re having on Halifax real estate.

“I think there’s a political issue here in terms of containing investor demand… But we also need to understand very clearly that even if we address that properly, investor behavior wouldn’t solve our larger problems.”

Lovitt said it’s important to note that the study does not include corporate purchases or purchases with foreign mortgages.

He said the category of investors in the study probably made up “a large part” of what would be considered an industry.

“But it’s also not really approaching some of the more familiar forms of real estate investing that are being talked about as part of the housing crisis talks.”

The Bank of Canada report doesn’t include details for the rest of Nova Scotia outside of the capital, but Lovitt said the situation in Halifax is likely a good general indicator of real estate activity across the province.

“I wouldn’t be surprised if you found individual municipalities or regions that are much more focused on investor behavior and vice versa.”

Regardless of who’s doing the shopping, no part of the province has been spared huge jumps in property prices; The Nova Scotia Real Estate Association reported 2021 compound annual growth across the province of 23 percent.