Anecdotal evidence suggests that investors are starting to look to deleverage properties in the Toronto are - does the data suggest this is part of a larger trend?
Over the past month, I have received a relatively high number of calls from investors who are looking to reduce their debt load by selling one or more properties.
In all cases, the investors owned multiple properties (usually three or more) rather than a single property and are exploring different options, including either selling one or two, or continuing to rent them out.
I decided to look at the data to see if investors are selling their homes at a higher rate and, if they are, how this has changed over time.
First, a quick note on methodology. We can estimate if a condo that sold on the MLS is owned by an investor by checking to see if the last transaction on that property on the MLS system was a sale or a rental. If the last transaction was a rental, we can be confident that the seller is an investor who is either selling the condo tenanted (i.e., with a renter in place) or vacant. If the last transaction was a sale, we can reasonably assume that the unit was owner-occupied.
Now, it should be noted that this is not a perfect estimate for investor activity given that some cases will be missed. For example, if an investor rents their condo unit out privately, they would be classified as an end-user (i.e., someone who bought the unit to live in it themselves) when they sell because we wouldn’t have any record of a previous rental transaction for that unit. That being said, the share of investors renting their properties out privately should not change much over time so this should not impede our ability to see the trends under investigation.
Accordingly, the chart below shows the percentage of condos sold each month in the City of Toronto that we believe are owned by investors. The data is estimated monthly, but the chart shows a three-month rolling average to reduce some of the volatility in the data. I limited the results to condos in the City of Toronto since this is where investor ownership is the most concentrated in the Greater Toronto Area (GTA).
While the share of investor-owned sales is on the rise, we are not seeing a significant sell-off yet.
Having said this, it should be noted that we don’t need to see a widespread sell-off for this to impact both the resale and rental markets.
When sales are relatively low, even a modest increase in condos listed for sale can shift the balance of the market from a balanced market to a buyer’s market, putting downward pressure on prices.
On the flip side, as more investors decide to sell units rather than rent them out, this will reduce the stock of rental units, which will put upward pressure on rent prices. The chart below shows the number of new condo rental listings for September, which shows signs of trending lower.
I will be monitoring how changes in investor selling behaviour may impact the resale market and rental market in the months ahead.
John Pasalis is President of Realosophy Realty. A specialist in real estate data analysis, John’s research focuses on unlocking micro trends in the Greater Toronto Area real estate market. His research has been utilized by the Bank of Canada, the Canadian Mortgage and Housing Corporation (CMHC) and the International Monetary Fund (IMF).