If you are looking to sell a property in Toronto, Canada, you have probably become accustomed to hearing predictions of doom and gloom in the property market in the city for many years now. Hilliard Macbeth, a real estate expert predicted in 2015 that Canadian home prices would crash by 50%. That didn’t happen.
David Madani, chief economist at the major global forecasting firm Capital Economics, warned of a collapse in the housing market in Toronto in 2011. That didn’t happen. He made the same warning again in 2013. That didn’t happen either. And he warned again last spring. Well, nothing of that sort has happened.
Here’s more – noted financial author Garth Turner actually wrote a book predicting a crash in the Canadian housing market in 2009. The market has actually rebounded since then and property prices are even higher than they were in the pre-crash period of 2006-07.
Clearly, most real estate experts have been wrong about the Toronto property market and continue to be wrong. There is no bubble in Toronto that is waiting to burst!
Let’s understand what a bubble means. A bubble when people buy properties purely for the purpose of speculation. Not to live in a home, but to make money. That’s not what is driving the housing market in Toronto today.
The housing market in Toronto is being driven by hard working immigrants to Canada who are looking for their first home in their new country. It is also driven by Millennials who have got married and want to settle down. The majority of the people who buy homes in Toronto do so for the sole purpose of living in these houses.
As John Pasalis, who heads a Toronto real-estate firm Realosophy, explains, "I don't see the market falling at all in 2016. We're getting further into this imbalance where demand is exceeding the supply of houses coming on the market. Usually when the market's slowing down and prices fall, you can see signs of that well ahead of time. When you look at the momentum in Toronto's market, it's not going in that direction."
Indeed, senior economist Robin Wiebe of the Conference Board of Canada forecasts an economic growth of 2.8% for the Toronto metropolitan area. He says that the fundamentals of Toronto's housing market are pretty good.
What about mortgage rates? Many economists predict that the interest rates would be increased gradually by the Bank of Canada. But that doesn’t matter, according to Mr. Wiebe, who says, "We forecast interest rates will be relatively benign through 2016."
He explains that for Toronto's housing market to collapse, "you'd have to see a really large spike in interest rates or a really large drop in employment. It always could happen, but that's not what we or anybody else, frankly is expecting."
Sherry Cooper, an economist who works at Dominion Lending agrees with the assessment. She says, "It would take quite a significant increase in mortgage rates to trigger a crash. I don't think interest rates are going to rise dramatically."
Ms. Cooper adds, "I don't think we'll see a crash because the average household is still in good financial shape. Yes, it's true that debt-to-income ratios have risen, but household wealth has increased more than household debt."
The fact is that the housing market in Toronto is guided by the simple rule of demand and supply. As the population in Toronto keeps growing, so will the demand for new homes in the city. The number of home seekers in Toronto by far outstrips the number of homes that are available. So it does seem that the rumours of a housing bubble in Toronto are overdone and the experts who have predicted a crash in Toronto’s property market are very wrong.