House hoarding? Why some upsizing homebuyers aren’t selling their old homes

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After hitting unprecedented levels in March, home sales in Canada have slowed down for three consecutive months between April and June, according to data from the Canadian Real Estate Association (CREA). But a shortage of homes listed for sale continues to fuel competition among those determined to buy and push prices higher.

After declining by 6.4 per cent between April and May, the number of newly listed homes showed little change in June, according to CREA data.

While homes available for sale are still coming on the market at a healthy clip, “it just doesn’t feel like it when it gets quickly vapourized by buyers,” Robert Kavcic, senior economist at BMO, said about the latest housing statistics in a recent note to clients.

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So why aren’t more homeowners hanging a “for sale” sign on their lawns in what remains clearly a seller market?

Keeping tabs on sellers’ sentiment is always trickier than interpreting what’s driving buyers, says John Pasalis, president of Realosophy Realty in Toronto.

“Buyers are active well before they actually start searching, so we have a very good pulse of what they’re thinking,” he says. “But sellers we don’t hear from until they plan to sell. Obviously, if they’re not selling, we don’t really know what their motivations are.”

In part, lower listings may reflect a seasonal trend, as Canadians are traditionally less likely to put their homes up for sale in July and August, he notes. And many sellers may be waiting on the sidelines to see whether activity resumes its breakneck pace in September, he adds.

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But “one big factor” Pasalis sees for the lower volume of listings over the past few months is a growing trend of existing homeowners who are buying and moving to new homes without selling their old homes.

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“We’re still certainly seeing on the ground that a lot of people who already own homes and are moving or upsizing are trying to keep their original home,” he says.

“With house prices rising as rapidly as they have people who are able to kind of keep their existing home — whether it’s a condominium or a house in the city, if they’re moving to the suburbs — are trying to keep those houses that are just using them as an investment and renting them out,” Pasalis says.

Sky-high home prices have moved homeownership out of reach for many young Canadians. They’re also forcing a growing share of buyers to stretch their budget to the max. A survey released Thursday by the Canada Mortgage and Housing Corporation found that two-thirds of recent homebuyers paid the highest price they could afford on the purchase of a new home.

But some Canadians who’ve owned their homes for 10 or 15 years in a rapidly appreciating market like Toronto have hundreds of thousands of dollars worth of equity in their existing properties they can tap for the down payment on a new home without needing to sell their old home outright, Pasalis notes.

Although there’s little data to show how many buyers are upsizing without selling,in a hot market, you’re always going to have more people who want to hold real estate,” says Rob McLister, mortgage editor at financial products comparison site RATESDOTCA.

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A 2019 analysis of Statistics Canada data by Andy Yan at Simon Fraser University found that 20 per cent of homeowners in Vancouver owned two or more homes with most of those properties located within the confines of the city. In Toronto that share was 17 per cent.

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Homeowners often use home equity lines of credit (HELOCs) to borrow against their existing home to help pay for the down payment on a new property, McLister says.

For many people, this would increase debt loads to the point they wouldn’t qualify for financing a mainstream lender, he warns.

Federal regulators recently tightened mortgage stress test rules in response to concern about the scorching hot housing market. The new qualifying rate for borrowers with insured mortgages – where the down payment is less than 20 per cent – and those with uninsured mortgages is now either 5.25 per cent or two percentage points above the contract rate, whichever is higher. The change raised the bar for mortgage applicants by about half a percentage point.

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Still, there are plenty of homeowners who can comfortably carry debt on two properties, McLister adds.

And with demand still outstripping supply, property values are continuing their upward march. The benchmark home price was up 0.9 per cent in June compared to May.

The actual national average price of a home sold in June was a little over $679,000, up 25.9 per cent compared with a year ago.

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