Toronto Housing Market Bubble
The Rolling Toronto housing crash forecast continues through 2023 and into 2024. Have we critical mass debt yet?
Now years later from original predictions, in September 2023, there are still rumors of trouble in the Canadian economy and that the housing markets will crash. There are few takers on that prognosis.
You’ll find a list of factors that could produce a real estate crash in the GTA region below to review. At this point, with a recession unlikely, given intense demand for homes, and that the final BofC rate hikes will happen soon, most housing economists believe a housing downturn will not happen. Sellers may have stepped away, but they’ve still got home buying on their minds.
“The latest Teranet-National Bank composite index showed that average prices in the country’s 11 largest census metropolitan areas increased by 1.8% between June and July excluding adjustments – their second strongest monthly increase ever and the index’s fifth monthly jump in a row.” — From MPAmag blog post.
We’ve seen the crushing of demand and prevention of risky mortgages in Canada, and mortgages aren’t underwater, so the Toronto regional market is looking good. A glut of new construction is not happening, immigration is set on high, and mortgage rates will decline in 2024.
Sometimes, economists just completely miss it!
The matter of a housing market crash in Toronto or even Vancouver is a tantalizing topic. Many use the word bubble to describe inflated demand by overextended buyers who suddenly can’t pay their mortgage and must unload their property.
Home prices have risen through the last decade, supported by anti-housing governments, stimulus spending, and huge rises in immigration. The chart below shows a consistent rise overall, not as bubble-like as you see in some US cities. Real estate investors love anti-housing governments because they protect the rising value of their property which they build their lives on and use to generate usable credit.
“The high prices in Toronto are not significantly detached from the city’s housing market fundamentals like income, population and interest rates.” — from blog on NowToronto.com.
With a split with China, the US and Canadian economies stand to grow tremendously as production is brought back to Canada and import debt falls. Canadian consumer debt is very high and this feeds into a housing correct scenario.
The Toronto real estate market can only collapse along with a major economic collapse. Many experts don’t see that happening, which means Toronto home prices will keep rising as depicted below, until an external economic event creates a retraction of all consumer spending.
Given the price of homes in the GTA and rising rates, demand is waning a little, but buyers are always ready to pounce on anything that might come up for sale. Sellers really should be thinking about cashing out and collecting their $1 million windfall but they’re locked into low rate mortgages and won’t put themselves through a costly refinancing.
This current economic slowdown and the global economic downturn is making us think a soft landing from the vicious interest rate hikes is likely.
The Heavy Weight of Rising Mortgages
Those overweight with debt and carrying ballooning mortgage payments are nervous. Some may be able to bail out now before the crash. That might save many foreclosures and bankruptcies (which are going to happen). The government has no handle on this crisis. Their latest ploy of preventing foreign investment and stopping buyers from owning second homes infringes on human rights so they’re sacrificing their future election for the sake of appearing to be doing something.
Trudeau set the immigration limit for 341,000 new immigrants in 2020. In the last two years, 1.7 million immigrants have been pulled in by the Prime Minister and his party, even though there is no jobs or accommodations readied for them.
“For the second time since its inception as a country in 1867, Canada has welcomed over 400,000 new inhabitants in 2021. The country has set a new all-time high for permanent residence landings in a single year. Canada’s immigration levels have been among the highest in the world for decades” — excerpt from a 2021 financialexpress.com post.
As the summer recovery hits, fewer buyers are active but they’re still able to big up home prices in the GTA. In Calgary especially, the booming energy industry will drive much higher prices. As Calgary draws more inbound residents, homes will be freed up in Ontario.
Will the Toronto Real Estate Market Crash?
What could be severe enough to kill of buyer’s appetite completely?
- excessive mortgage qualifying criteria
- severe changes in international trade and supply chains
- consumers savings is exhausted
- fast-rising mortgage rates
- sudden downturn in the US economy
- stagflation make buyers give up completely
- inflation goes completely out of control as 2024, low rate recovery begins in the US
But general bad news just isn’t enough to send the TO market crashing. There has to be a significant catalyst like a match in a powder keg room.
I have predicted that a geo political shock is the most likely source of the next stock market crash and housing market crash. And Putin with his back to the wall, his threats of a nuclear attack might be what he thinks is his ace persuasion card. With Biden and Trudeau, both weak ineffectual leaders getting nervy and aggressive, we’re in an uneasy spot. Weak people don’t know how to handle ugly aggression. Biden is ill and the US will be looking for a new President next year.
Toronto Housing Market Crash Factors
What are the economic and real estate market factors that affect your selling decision?
- mortgage rates rise too high to qualify
- refinancing of home debt plunges (already happening)
- US economy falters against global wartime conflict
- GTA economy and employment starts to fall quickly
- Canadian consumer debt reaching limits it can’t sustain
- NAFTA agreement conflicts and refusals
- add on taxation by Ontario, city and Toronto governments
- soaring home prices fall due to international conflicts
- moderate new home construction – abandoned security deposits
- government meddling with property use
- mortgage rates rising faster
- multifamily new construction creates too much supply
- number of millennials buying homes drops or house prices are out of reach (simply no way to qualify to buy)
- banks get skittish and refuse to lend in such an environment
- political pressure to keep home prices up to protect homeowner’s equity and credit situations
Does the Past Tell Us Anything?
If the past does tell us anything, it tells us we’ll probably make the same mistakes again about forecasting crashes and bubble downturns. If we look at Toronto home prices over the past 60 years, we’ll see that they’ve just kept rising. Even the great recession caused only a small blip and the US recession of 2007 didn’t even leave a dent. As long as there’s a lack of development land, the price will speed up like an angry commuter on the Indy 400 (or 404 or 401) and inevitably crash.
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