Montreal area seeing an increase in quick resales, including house-flipping: CMHC report
Hot market may entice people into risky speculation, create competition for buyers
A new report by the Canada Mortgage and Housing Corporation shows that instances of quick resale, where a property is bought and then sold again within 12 months, are going up in the Greater Montreal Area.
While this remains a small part of the housing picture, hovering at around three per cent of all transactions, the report shows how the practice can have an adverse impact on buyers and renters.
According to the CMHC report, between January 2016 and the first quarter of 2021, about 8,840 properties were bought and resold within 12 months.
Of these, single-family homes accounted for most of these resales, at about 53 per cent, with condominiums making up 36 per cent and plexes, 11 per cent.
In calculating the profit made on these sales, the CMHC took into account only the prices a property was bought for and then how much it was resold for. Notably, this excludes the cost of any renovations done on the property and brokerage fees.
It also notes that quick resales "may be attributable to the fact that some households must sell their property for family or professional reasons," or they may be done by people "who want to realize a quick financial gain."
While quick resales where renovation permits were issued showed a significantly higher increase in resale value than the median, the CMHC notes that these numbers aren't representative of the whole picture because many renovations can be carried out without a permit.
Because the percentage of quick resales accounted for a small corner of the housing market, the report states that the phenomenon hasn't had a major impact on the median prices of homes in the Montreal area.
Renovations have an impact
While quick resales are "not the most determining factor to explain the current affordability challenges," the increase does create more competition for buyers looking for a home to live in who may lose out in bidding wars to speculative buyers and house flippers.
The report notes that bidding wars have become more common and that "price growth is generally much higher for quick resales than for all market transactions."
In 2020, for example, the growth in the price of quick resales of single-family homes in the region reached 38.7 per cent, compared to 13.2 per cent for all transactions.
For single-family homes resold in 2019, where a renovation permit had been issued, the median price growth was about 85 per cent compared to the median for all single-family homes resold in 2019, which was 33 per cent.
The increase in competition also has an impact on the mentality of buyers, states the report.
"Some households may start having irrational expectations with regard to prices, thinking that they can only increase. Under these circumstances, there could be more and more quick resales in a market where the buyers' only goal is to obtain a significant and rapid financial gain," it reads.
"These speculative purchases could therefore amplify the overheating and price acceleration on the market."
The increased competition may also lead some buyers to "take on more debt to buy a property" to meet their housing needs, the CMHC says.
The report goes on to state that the acceleration of the market could have an impact on tenants as well.
"It is quite possible that the sale of small income properties at high prices could, in the short or medium term, result in higher rents for tenants."
Concentrated areas in and around Montreal
In the case of single-family homes, there was a concentration of quick resales in the West Island, particularly in Dollard-des-Ormeaux "where quick resales accounted for four to five per cent of total resales from 2016 to 2019."
On the South Shore, "The municipalities of Boucherville, Brossard, Longueuil and Saint-Bruno-de-Montarville saw relatively high increases as the proportion of quick resales varied from one to three per cent in 2016, to four to five per cent in 2019," reads the report.
For condominiums, higher quick resale activity was recorded the Sud-Ouest and Ville-Marie boroughs of Montreal.
"In addition, strong activity was noticeable in the municipality of Côte-Saint-Luc, with about six to seven per cent of resales occurring within one year for 2017 to 2019."
The report notes that the city of Longueuil stands out with a quick resale rate of seven per cent for the entire period under review, including a rate of 10 per cent in 2019.