Homebuyers are being driven by three key motivations: the fear of missing out, the perceived impact of foreign investors and expectations of future price growth.
These are the findings from CMHC’s recent Housing Market Insight report, which surveyed 30,000 recent homebuyers in Vancouver, Toronto and Montreal.
Despite data from Statistics Canada that pegs non-resident home ownership at 4.8 percent in Vancouver and 3.4 percent in Toronto, close to two-thirds of Vancouver respondents (68 percent) and half of Toronto respondents (48 percent) believe foreign buyers are having “a lot of influence” in their respective markets and are responsible for rising home prices.
By comparison, 42 percent of Montreal homebuyers share that belief.
“What is striking is the significant gap between perceptions of the public and available data, so much so that the perception of non-resident ownership takes centre stage when discussing the drivers of price growth,” the report noted.
Blowing Past Budgets
When it came to setting a budget for the purchase price of a house, a significant percentage of homebuyers in all three cities spent more than they planned.
Nearly half (48 percent) of the buyers in Vancouver and Toronto blew past their budget, while 24 percent of Montreal homebuyers spent more than intended.
CMHC said the figures were similar for both first-time and repeat buyers and suggests that the “fear of missing out” drove many buyers to exceed their budgets.
“Buying sooner than expected may reflect a lack of information about the market, thereby pushing up the initial budget for fear of missing out in a market where prices rise,” the report hypothesized. “Buying later than expected may reflect the inability to buy at the desired price, which would inevitably require buyers to revise their budget in an upward fashion.”
Bidding Wars and the Expectation of Future Price Growth
The survey also delved into the issue of bidding wars, which it noted are common in tight markets.
In Toronto and Vancouver, for example, 55 percent of buyers reported being involved in a bidding war, compared with just 17 percent of buyers in Montreal.
Single-detached homebuyers involved in bidding wars ended up paying a premium of about 20 percent in Toronto ($125,000) and 10 percent in Montreal ($55,000), according to the survey results.
Interestingly, in Vancouver those involved in bidding wars typically paid 15 percent less ($200,000) than the median price. CMHC explained this as being due to the bulk of bidding wars taking place in segments of the market where prices were below the median.
“…those who experienced a bidding war and highly value future growth have higher short-term price expectations than respondents who did not report participating in a bidding war,” the report noted. “This would suggest buyers rationalize their purchase because of expected future growth.”