Toronto Housing Market Bubble
Crash Update: Reports about the potential of a Toronto housing bubble and crash have been around for many years.
Trump tax cuts and stimulus spending prevented the crash, yet now in 2022, those factors are gone and interest rates are poised to rocket under an ineffectual US Fed. The American situation governs what happens in Toronto, and the Bank of Canada just raised their rate by 100 basis points.
The GTA economy is actually more vulnerable to an American recession since the US is the primary market for Toronto products.
Life is Good, other than those Ridiculous Home Prices
The housing market and economy are okay right now, but anyone with common sense can see the key signals are pointing to a major correction. The latest home price report reveals that in many GTA cities, prices have doubled in the last 4.5 years and they are ridiculously high.
The matter of a housing market crash in Toronto or even Vancouver is a tantalizing topic. But is a crash just wishful thinking from desperate home buyers who feel things are only going to get tougher in the years ahead?
Home prices have risen through the last decade, supported by anti-housing governments. Homeowners love anti-housing governments because they protect the rising value of their property which they build their lives on and use to generate credit. Will a pro-housing government be elected? Not likely, so there will always be a shortage of housing. Crooked politicians keep the scam rolling. Doug Ford said he would lower real estate values before his election, and 5 days later he retracted that statement. His bosses had a word with him.
So what could possibly override this deliberate strategy to push prices upward? It has to be something outside of Ontario. Because they’ve got this housing sector rigged to the hilt. A big sudden new tax could stop the rise, and make them look good, but a real estate market crash is a whole other thing.
“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. Artificially generated demand and actual demand are also key fundamentals.
Torontonians can afford it which means a crash can’t happen likely until 2023 when some significant political events in the US occur and government legislation changes. Yet, it’s likely 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, until an economic event that could generate a crash. Perhaps these economic trends are making some less prepared or aware of how events to conspire to create a Toronto housing market crash.
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. Life doesn’t offer things like this very often, if ever. Those who sit on their house because “their kids are comfortable” aren’t seeing the big picture. Your kids will be better off with the revenue generated from a home sale (education, recreation, travel, lack of poverty).
This lull and the global economic slowdown is making us think a softer landing is likely.
Now that federal government stimulus is waning, wars are raging, prices inflating, and interest rates rising, there is little left to sustain the brisk price rises. It’s the same with the US housing crash issue, that the financial cause of this next real estate market crash are hard to comprehend or prepare for.
We stretch our minds to wonder what could possibly crash the GTA market. Everything seems so positive and if inflation dies down by fall, wouldn’t demand stay intact?
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.
“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 financialexpress.com post.
Unasked for increases in immigration in the post pandemic period will push up demand and price pressure. As the summer recovery hits, buyers will have more money to throw at a home so home prices will rise this summer. In Calgary especially, the booming energy industry will drive much higher prices.
We don’t need to hear stories of houses for sale taking 50 bids and being sold at $1 million over asking. It’s common knowledge. What buyers and sellers are wondering is what economic events will send this market crashing. What could be severe enough to kill of buyer’s appetite completely?
- excessive mortgage qualifying criteria
- fast rising mortgage rates
- sudden downturn in the economy (Russia war mongering really hits home)
- inflation shock and economic stagnation make buyers give up
But general bad news just isn’t enough to send the TO market crashing. There has to be something significant like a match being lit in a powder keg room. That might be a new government tax, and let’s face it, governments need money.
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 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.
A Long Time Coming
What makes the proposition of a Toronto real estate market crash so compelling, is this is something that’s been fought off for so long. The anti-crash forces are weakening however, and if anything should tank the Ontario economy, we might expect the avalanche to begin quick.
Government manipulation is always a concern and it’s tough to predict when a political party will panic and what kind of crazy things they might do to save themselves. These are erratic moves, like someone on your mountain climbing team jumping 10 feet down the snowy slope because he feels like it. Being tethered to someone like that would make you feel slightly nervous.
Trudeau’s regime announced it will ban foreign investors from buying homes in Canada for 2 years in a bid to cool off a hot housing market. This is more less desperation of someone who doesn’t have control. Millennial buyers here are the big demand factor against a lack of inventory. The new law won’t have much effect which means it shouldn’t have been done.
If there is no housing available across the country then importing a million new residents (they all want to be in Toronto) is hardly going to ease the price pressure. Trudeau needs the votes, so he’s going to drag these people in. Polls show most of these immigrants want to go to the US.
Santo Sessa Real Estate says the most recent buyers are panicking and are considering getting back out right away.
Toronto was Rated the Most Vulnerable Housing Market
Given how Toronto area wages are not good and debt levels are very high, recent home buyers and mortgage holders are vulnerable to this economic downturn in Ontario.
A doubling of refinanced loans will mean a number of indebted homeowners will be lose their properties, and many will go bankrupt. Canadian consumers are dangerously indebted to the tune of 2.1 trillion dollars. An eye opening amount that’s not getting much attention. But consider that as the CPI rises real earnings are falling. Rising interest rates isn’t something many homeowners have planned on. Previous BoC governments said investing was safe and rates wouldn’t rise.
The saviour here is for many of these owners to sell in 2022. Surveys in the US suggest a strong intent to sell, and there’s little doubt that if a poll was taken here, it would reflect US trends. This is just people being smart. The outlook is bad, and it’s important to act now before the bottom falls out.
There are many, just as in 2007 who can’t believe the gravy train will end, and that disaster is just ahead. History always repeats (guided by millionaires and politicians) and this long 12 year bull run is going to end. Of course, governments can spend and allay the collapse, but if enough homeowners sell their homes we could possibly avoid a catastrophe at least in the Toronto housing market.
Toronto house and condo prices have hit record levels and due to a severe ongoing housing shortage and prices will soar this spring. We almost don’t need housing market predictions from Zolo, Remax, Royal Lepage and TRREB because we’re still coming out of the pandemic recession.
What no one counted on was strong rising rates, and the BofC is leading the globe in its zeal to raise rates. Investment money was pouring in to purchase a small stagnant pool of homes and condos, but that investment will end soon. Yes, rent prices are rocketing so the rental property market is one of those bright spots in the arena.
With average condo prices past $800,000 now in March 2022, the bubble scenario become more plausible. Especially since lower priced markets including condos are typically bought by lower income buyers. That group may be drying up very fast. Who would risk buying a condo right now? Only very desperate buyers.
Governments have announced intentions to pour money into the housing market to the tune of billions. But it’s too little too late, and could actually feed a glut of housing units that usually adds to a housing market crash.
Condo and apartment prices have been far outstripping wage growth, and with insufficient home listings and rentals available, price pressure is intense. Governments have worked hard to push high density housing in Ontario, thwarting borrowing and housing development for the many cities in Southern Ontario. That’s what created the price pressure.
Now with construction cranes everywhere, could the big crash event be upon us? What is the event that launches it?
What Could Cause Toronto to Crash?
Many years ago, I suggested an economic shock such as a geopolitical conflict/trade war but the pandemic launched from China actually came along. And of course, with irrational spending to float big corporations, the reverse happened. If the government is unable to borrow and spend, then this would be catastrophic.
Back then, the price of oil was perched at $29 a barrel. Money had not made their way into the gold and silver market, but now they have. Back then, everyone was are hoarding cash, particularly US dollars. and now they’re becoming less useful. The Saudis want to make the China Yuan their currency of choice.
Young millennial first time buyers inflate the Toronto market and with a downturn, these buyers are first to go under. If global interest rates are rise due to the global recession (US economy and stock markets are strong) it could result in a fast withdrawal from buyers.
The fear or prediction of a crash has been around a long time in Toronto, and the city has kept escaping that catastrophe for many years now. But highly indebted Millennials pour into the market just as speculators do too, meeting a potential global economic crisis could be the event that drains Toronto’s luck. If prices fall, many young buyers will qualify for a mortgage and will get in this market at still ridiculous prices.
US Trade Relations Still Weak
Ontario is highly dependent on US trade but with any kind of recession, the US will look dimly on cheaper Canadian imports (using imported China parts). The US poised to do a trade war with China (who wants to invade Taiwan) means disruption in supply chains. And already, those supply chains are in trouble.
On the bright side, the Ontario economy has been doing well:
- the TSX stock exchange has picked up considerably
- the NAFTA deal is looking okay
- real estate is on an upward tear
- interest rates are ultra low (but are now rising)
- Canadian dollar is low but is rising (79 cents US)
- Ontario’s taxes can’t generate enough money for infrastructure improvements
Ontario is a strong province, yet tech is suffering and regulations and taxes make doing business here uncompetitive. As the provinces numbers show here, imports are out of control and consumer consumption is weakening and business investment is weak. Will the small business recovery simply come too late?
Former Canadian Bank governor Stephen Poloz said that interest rates could move “in either direction.” They’re heading up fast. He emphasized that the Canadian economy was still highly susceptible to shocks, and a cooling housing market combined with debt worries are still worthy of concern – from the Fool.ca
Vancouver’s real estate market is just like Toronto’s and is in the midst of a correction.
The lack of rentals is the “biggest pain point for our city,” With 100,000 people moving to the Toronto area annually, the region needs about 30,000 rental units. Toronto has about 1,500 coming on stream” from Toronto Star report.
1 in 10 wiped out by 20% correction — “A badly managed downturn in real estate prices could wipe out the wealth of a large number of Gen-Xers and Gen-Yers. We need to recognize that young families are the most likely group to be plunged underwater by a nasty housing correction,” said CCPA economist David Macdonald.
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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
- 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
- summertime building 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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