Our latest Housing Market Insight (HMI) for Canada goes over the results of the fall 2018 Homebuyers’ Motivation Survey. The fall 2018 edition of the Survey focused on expectations of price growth and changes in those expectations. Lorraine Macdonald, Specialist, Programs, in the Data Division of CMHC’s Analytics & Chief Data Officer Sector, explains:
“We wanted to better understand the thinking and behaviour of homebuyers. The continuous overheating of housing markets in some major Canadian cities has raised concerns among the general public and within government. Our goal: understand and address the reasons for this overheating.
“The problems associated with the declining affordability of homeownership and threats to financial stability are significant. It’s therefore important for the industry and policy makers to understand all factors related to the housing boom and dramatic price increases.
“For this reason, we designed a questionnaire that we sent out to 50,000 recent homebuyers in 3 major centres: Toronto, Montréal and Vancouver.”
Findings from the fall 2018 Survey
The HMI highlights some key facts revealed by the Survey:
- In Montréal, the proportion of homebuyers who said they spent more than they’d budgeted rose from 24% in 2017 to 28% in 2018. The proportion of homebuyers who thought foreign investors had lots of influence on prices in Montréal also rose, from 42% to 52%.
- A large majority of homebuyers (75%) were less willing to take financial risks.
- In Toronto, 45% of homebuyers experienced a bidding war in 2018. This was a drop of 10 percentage points from 2017, when the proportion was 55%.
- Fundamentals drivers (interest rate changes, employment growth, population growth) are thought by homebuyers as having less impact on house prices than factors linked to speculation.
- Price growth expectations in a given year were similar to the actual price changes the year before, except in Montréal. There, price growth expectations in 2018 were lower than the actual changes in 2017.
Focus on subjective factors influencing price growth
The Homebuyers’ Motivation Survey was developed as a complement to traditional economic analysis. Its focus: giving us a better understanding of the non-traditional factors influencing homebuyers’ decisions and rapid price growth in certain markets.
It’s clear that fundamental factors like income and interest rate changes can’t fully explain rising prices. Studying other factors, like subjective factors, and their influence on price growth, can therefore improve our understanding of housing markets.
This year, the Housing Market Insight on the Survey focuses on subjective factors like homeowners’ expectations of growth in house prices.
Recent studies of these expectations show that high levels of optimism can sometimes lead to speculation. This speculation makes homeowners willing to pay higher prices for homes, which, in turn, distorts house prices.