The housing bubble in Canada has been a topic of concern for so long that it even has its own Wikipedia page, and the Toronto housing market is no exception to this. While there is a lot of good information out there, there is also a lot of hysteria. Ultimately, nobody can predict the future, but with experts and investors pouring huge amounts of time and effort into understanding what is going on, there are some questions that we can answer.
Is the Toronto Housing Market Currently in a Bubble?
The Basic FactsAt a glance, the statistics on property prices in Toronto are pretty astonishing: prices have risen by an average of ten percent a year over the last five years, including their 18.1% rise this year. In other words, a condo that cost $620,921 in 2016 would now be valued at $1,000,000. Little wonder that it now takes an average of 27 years of savings to buy a house there.
What Are the Experts Saying?Most major institutions and commentators agree: this is a bubble. In May, the Bank of Canada named the housing bubble as the bank's main concern regarding the Canadian economy, pointing particularly to Toronto and the Greater Toronto Area (GTA). Likewise, Swiss Bank UBS rated Toronto among the three biggest housing bubbles in the world in October 2020.
Why Do They Think This?With the aforementioned incredible growth of house prices in Toronto, it was inevitable that the stability of this growth should be questioned. However, the conditions under which this growth has taken place are what really concern the experts.
Fundamental Market Forces AnalysisIt is often argued that a bubble can be identified when changes in fundamental market forces cannot explain a price rise. In the case of Toronto, an analysis of market fundamentals suggests that prices should have risen by 12% since 2014 when in reality they rose by 93%. Given the vast difference between market fundamentals and reality, it seems likely that the reason for the increase is a bubble.
Supply and DemandOne reason why prices might rise so suddenly is demand massively overwhelming supply, causing prices to rise for what little is available. However, over the past six years 230,210 "dwelling units" have been constructed in Toronto, so it is clear that supply is not an issue. It is therefore reasonable to assume that prices are rising because people expect prices to rise further, and are therefore hoping to sell later for a higher price.
That is a classic symptom of a bubble: a conclusion strengthened by the fact that, while house prices rose in the GTA as a whole, the average price of a house in Toronto decreased from May to August. In other words, Toronto was too expensive for most. When that happens, the prices are almost certain to go back down in order to be affordable.
Does Anyone Disagree?Very few people. Those that do so point to the continued demand in the area and attribute this to Toronto's growing reputation as a tech hub, accelerated by the arrival of Alphabet's (Google's sister company) Sidewalk Labs. They also suggest that red-tape affecting new developers causes a lack of supply relative to demand. However, in the face of the evidence discussed so far, it is not surprising that this opinion is not commonly held.
To discuss buying or selling in Toronto, call Nancy at 416-985-1486 or Dave at 416-894-4079, or visit GTASelling.com.