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The Simple Story Behind The Ontario Real Estate Market Crisis

May 09, 2018

How the Ontario Real Estate Market Crisis Escalated and What's Next?

Like you, I've been paying attention to the current state of Ontario's Real Estate Market (specifically GTA and the Golden Horseshoe). I’ve been watching the impact on buyers and sellers in the market and seeing the housing crisis escalate for years now. I was interested in an Ontario Fair Housing Plan when it was announced, as I was convinced that an intervention can provide solutions. But after looking at all 16 initiatives within the plan, I’m not sold that this bureaucratic and tediously lengthy plan will solve the housing issues around the GTA. Instead of relying on anecdotal evidence- I prefer to rely on data. But, data doesn't exist in a vacuum, and it's the story behind it that helps us understand what’s really happening.

The Tale of Ontario's Real Estate Market is Short and Sweet.

Over the last few years, stories of bidding wars have flooded news channels. Real estate has been a go-to topic of conversation for folks in all types of fields of work. The issue of housing affects us all- after all, we all need a place to live, right? Although many perceive the current state of the market with a negative sentiment, there are positive attributes to it. Realtor “self-esteem” and success is catatonic. Every decent realtor can post updates on their social media channels of how we sold homes quickly and well over asking price. The most recent and extreme example is a townhome in Toronto that sold 1 million dollars over asking price after just a few days on the market. With so much noise and chatter, there is little reference to the actual cause of the escalating prices of homes in Toronto and the rest of the GTA. Why has it become so unaffordable and what’s to come in the future?

 

There’s an array of opinions:

  • Many have and will continue to say we are in a bubble and it’s about to burst. Drawing on the similarities between today's market and the recession (aka real estate bubble) from the early 90s, they justify a crash is imminent. Yes, if the stock market crashed and mortgage rates climbed to double-digits then the real estate market would be in trouble, but does that mean we should sit and wait for it to happen?
  • Some will say that the debt to income rates are unmanageable, resulting in an economic downturn similar to what happened in the US in 2007. Although there is some truth to this sentiment, I think that the Bank of Canada has done an excellent job mitigating risk through stringent regulations after the “subprime mortgage financial crisis” south of the border.
  • Then there is the foreign speculator, who buys real estate and let’s it sit vacant, because why wouldn’t they leave thousands of dollars of rent money on the table every month?
    • Another token of blame is thrust on the wealthy tourist. These folks don’t live in Toronto primarily but maintain a home here for weekly or monthly leisure purposes- similar to how many Canadians own real estate in Florida. 
  • Then there is the building industry, who has repeatedly said, to deaf ears, that the current state of the market is simply a matter of supply and demand. It seems like a go-to punchline for every builder or developer in an effort to influence government to make the building process simpler in order to keep up with demand. It seems like a logical theory from the experts, the people who build the homes our population needs to live. But is there any merit to this? 
  • Some blame is hoisted on the investor, the flipper, and the speculator who buys real estate as an investment instrument either for short term or long term gains. And in a market as viable as we have seen in recent years, they make good money off of it. This eliminates low-cost housing and continues to drive the prices of homes up.

I am sure there are many more theories around this topic, but like sweets too much data is not healthy for anyone. Without getting lost in all the details of every single opinion and data, we can start looking at a few meaningful stats that haven’t been discussed much in the media. The Current State Let's start with our primary assumption: it's not just your perception. Real Estate prices have been escalating. Quickly. Resale prices grew 16% across all home types in 2016 across the GTA (based on all TREB transactions). That’s significant, yet not as huge as the jump in March 2017 which saw prices increase 33.2% from the year before. Source: http://www.trebhome.com/market_news/market_watch/historic_stats/pdf/Historic_1703.pdf http://www.trebhome.com/market_news/market_watch/2017/mw1703.pdf 

Annual Average MLS Sales Price

 

Average low rise new home price index has essentially doubled from 2014 -2017, while new condos saw an average price jump of approximately $100,000 from March 2016 to March 2017

 

Monthly New Home Price Index GTA

 

Whichever way you look at it, the prices in the GTA and surrounding areas have been on a rollercoaster that only goes up. The question everyone is wondering remains: when will it all come back down? Or will it? We will be providing an updated analysis on the Ontario and Golden Horseshoe housing market every month in our monthly market reports.

 

infographic-how-the-ontario-real-estate-market-crisis-escalated-2000px-v2

 

Recent News & Reports

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January 2018 – New Year, New Market - The New Street Resale Real Estate Report for The Greater Toronto and Hamilton Region With 2018 and the emergence of the new mortgage changes comes a predictable overall drop since last month, keeping with the trend set by the last few months of 2017. The good news is, average prices remain relatively stable from last month, up by 0.2% to $736,783 in the Greater Toronto area and down 0.7% to $517,751 in the Hamilton area. From last year, we’re seeing a 4.1% decrease

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