The real estate market in Toronto has seen an unprecedented growth in last 5 years. Home prices in the GTA including Mississauga, Toronto, Brampton, Vaughan, Caledon and Milton has doubled in last 5 years. Unaffordability continues to be a crisis, especially for the first time buyers and new immigrants. There is a wind of caution but the growth is not stopping. Everyone is wondering when will this housing Bubble burst and who all will be affected?
Missed the Train?
As a realtor, I meet several prospective buyers who have literally missed the train waiting for the house prices to come down. A lot of buyers who were planning to buy a home 3-4 years back are now blaming themselves to missed the golden opportunity to make equity in the real estate market. These buyers were waiting for the bubble to burst some 4 years back but that hasn’t happened in fact the prices have been unrelenting. Now we see a level of desperation among some buyers which is not the right approach. Multiple offers, bidding wars and what not. By the way, don’t miss my article on How to buy a home in the bidding wars. A lot of these buyers in panic mode are trying to buy homes now with very high asking price.
When will the housing Bubble burst?
Now the question on everybody’s mind is when will housing bubble burst? A recent article in The Toronto Star by Gordon Pape predicts the housing Bubble inevitable. It says, that between 1989 and 1996, Toronto house prices fell by 40 per cent, adjusted for inflation. But the scenerio in that time was totally different than what we have. Despite glut in the Oil prices, Canada is enjoying a boom in it’s economy largely because of high foreign investment including Real Estate investment.
We admit the correction is bound to happen but even if we expect the correction to take place, what would be extent? Are we expecting a drop of about 20-25%? If that’s the case, there is nothing worry! Yes, because this is the current pace of growth per annum and even if the house prices fall to about 25%, that would be neutralized in 1 year. Therefore there may not be a crash but simply a correction in the home price.
Strong demand for 1 Million and under homes
Although 1 million is no longer a wonder word anymore, the demand the homes under $ 1 million will stay strong. This is because there are still thousand of prospective buyers who looking to buy home first time or largely buyers who missed the train. So it clearly shows that even if the home prices crashes, these homes will stay strong. The biggest effective will be on mega million dollar homes which have limited buyers. again there may a correction in smaller homes but it won’t be anything to worry! The luxury homes, on the other hand may be affected with bigger impact. Luxary home bust in Vancouver is a prime example where prices crashed due to a number of government policy changes that took place in mid of the last yeat. That included a one-per-cent tax on vacant homes implemented by the City of Vancouver and the B.C. government’s 15 per cent tax on foreigners buying homes in Metro Vancouver.
Effect on Condo Market
Toronto’s Condo market has been very strong. Urbanation Inc., which has been following the high-rise market in the Greater Toronto Area since 1981 said 27,217 new condo apartment units sold across the GTA in 2016, a 34 per cent increase from 2015 and enough to break the record set in 2011. Likewise, average rents for condos rose 11.7 per cent in the fourth quarter of 2016, compared to the same period a year earlier, hitting nearly $1,990 a month for a typical 719-square-foot condo, according to new data from Urbanation Inc.
If Crash happens, the biggest effect will be on the rental market. Condos being more affordable than single family homes have largely been bought by investors and second home buyers. They want their property to pay mortage via rental while they enjoy the Condo equity growth. A crash or slow down would create some turbulence amongst these investors which might ensues a selling spree. The rents may come down but again this is simply speculative.
Overall, the real estate Market in Toronto and the other GTA looks healthy and strong. The Correction will happen but the effective doesn’t look too ominous.
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