Even the ‘Experts’ are Confused about the Toronto Housing Market

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Trends in the Toronto housing market have become unpredictable to even the experts. Despite the publishing and sharing of reports and analyses examining Toronto real estate, the truth is few have been able to make a real prediction on where the market is headed.

Examining the Data Available

The Canadian Mortgage and Housing Corp. (CMHC) study commissioned by Ottawa compared the price gains of Vancouver and Toronto. The report found that roughly 75 percent of Vancouver’s price gains correlated directly with fundamentals. Compare this to Toronto, where only 40 percent of the region’s price gains could be associated with fundamentals. This has meant Toronto housing prices on runaway. The economic factors included in this study were aspects of population, incomes, and borrowing costs, among others.

What is arguably even more worrisome is that this study only analyzed these markets between 2010 and 2016. Since earlier in 2017, the entire landscape has shifted pretty significantly leading to increasing volatility from the perspective of ‘experts’ who find it difficult to predict what will happen.

There are Factors other than Demand driving Higher Pricing

Though prices are high in Vancouver, the high pricing is supported by economic fundamentals. When it comes to Toronto, this isn’t the case leaving the CMHC report to speculate factors other than demand driving the market’s price increases. The unpredictability has meant that strategies to bring prices down, such as monetary policy in the form of interest rates, may not work.

Why Toronto’s Price Increases are so Separate from Economic Fundamentals

The amount of wealth in Toronto is high, leading to the development of many higher-priced homes and units. The increasing wealth of certain residents compared to the lack of support on the other side of the income spectrum has created an unequal system, some argue, that continues to support price increases even though the City’s residents arguably cannot afford it.

There’s other speculation as well that focuses on how the housing supply has not increased in accordance with demand in areas such as Toronto and Vancouver. The lack of land supply and zoning regulations have contributed, to an extent. There have also been reports of Toronto builders struggling to keep up with pace.

CMHC Cautions against Making Firm Conclusions

The report states that it cannot make any firm conclusions on the ‘why’ behind Toronto’s assumed over-valued real estate market, due to the lack of data available.

What is clear is that this is not the only organization who believes Toronto’s real estate to be overvalued. The International Monetary Fund (IMF) have also warned about the risks of overvalued Toronto real estate.

Among all of this debate and data, a definitive way forward is not yet clear. With the recent changes earlier in 2017 instituted by the Ontario government, it’s important to allow these changes to shake out in the marketplace. This has seemingly been the approach since early spring. As the sales data continues to be monitored and analyzed throughout Toronto and the GTA, it is almost impossible today to predict where the market may end up tomorrow.

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