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Toronto housing bubble showing no signs of bursting

Dan Karpenchuk – WBFO 88.7 Buffalo

A recent survey by one of Canada’s big banks suggests that the cost of renting or owning a home in the city of Toronto is climbing out of reach of most residents.

The average price of a home in Canada is just over $400,000 and in Toronto, that number in excess of $575,000. Some experts say Canada’s biggest city is in danger of becoming the “New York City of the north.”

The report, by the Toronto Dominion bank, is raising concerns about affordability and availability of housing in Toronto.

Comment: It is of note that TD is the only one of the big banks with such a pessimistic outlook. The other 4 major banks don’t agree. The Bank of Canada and CMHC also think that Toronto housing is fine.

Toronto housing market
Experts say there is no end in sight to the  housing bubble experienced by Toronto, even while they insist prices are at least ten percent higher than they should be.

Comment: It is NOT a bubble. It is simple continued price appreciation for almost 20 years. Just because prices don’t fall doesn’t make it a bubble. And if price fell 10%, it would bring us back to where prices were last year. And last year they said price were over valued by 15%. So what is the “proper” value? It is what people will pay… it is a free and open market. Prices are set by buyers and sellers. There were 87,000 sales last year. That means at least 174,000 buyers and sellers. And another 174,000 buying and selling agents. That is over 350,000 people that set the prices in 2014. Never mind friends and family that gave advice or financial help. Plus 87,000 mortgages. I take the collective opinion of all of those involved in the market over what one economist thinks.

But real estate agents counter, saying as long as demand continues to outweigh supply, those prices will continue for the foreseeable future, even if there is a modest cooling.

Comment: But demand isn’t letting up, and supply is not increasing. In such an economic situation, prices don’t fall. I took that in Grade 9 business class.

The current situation, according to the TD Economics survey, is in danger of pushing prices beyond the reach of even high income residents.

Comment: Not true. If you start with nothing, maybe. But those moving up the property ladder have assets worth a lot, which they then sell. They put that money down on a larger house and use their high incomes to pay the remaining mortgage. Sure, even if you make $200,000/year it would be hard to buy a $1.5 million house without a large down payment. But that is playing semantics, which economists love to do.

“You’re dealing with a huge sticker shock and a growing gap between those larger properties and the smaller ones,” says Derek Burleton, TD’s deputy chief economist.

The TD report suggests that the boom in condo construction is partly to blame, at the expense of more single-family homes and townhouses.

Comment: Because condos are being built and houses aren’t? The market is speaking, buyers are telling developers what they want with their wallets.

“Removing some of the structural barriers that are driving up the cost of land, and leading to a housing stock that’s becoming very tilted toward small condo apartments,” Burleton adds.

Comment: How? As land becomes more scarce downtown, land values go up. Again, simple economics. Greenbelt legislation makes land in the 905 more constrained and thus more expensive. There are 100,000-120,000 people coming to the GTA every year, all of whom need somewhere to live. Demand is not letting up. Land is less available. People don’t want to commute, they are preferring downtown over the suburbs. So many factors are affecting the price of land and the type of housing being built, it is not as simple as “removing structural barriers” to magically make everything less expensive.

Toronto condos
But construction of new condo units has blossomed, in some cases making up as much as 80% of new residential construction, nearly half of it in Toronto’s core.

Comment: For the reasons I stated above.

With so little affordable housing, renters are getting hit hard as well, with many rents in the downtown more than $2,000 a month or about half of the income of the lowest 40% of wage earners.

Comment: But those lower wage earners can go to apartment buildings, where the rents are half what they are in new investor-owned condos. Just because some rents are high does not mean they are ALL high.

The TD survey says affordability has dropped to the point where Toronto is not far behind New York.

Economists say it takes 6.5 times the average income to buy a house in Toronto compared to 6.1 times the average income in New York City.

Comment: And those numbers are simply wrong. Especially when the GTA is ranked 323rd out of the 360 most expensive cities and New York is number 16. It is a completely illogical claim. Median sales price in NYC is $1,310,000 USD ($1,629,600 CAD)compared to $510,532 CAD in Toronto. Price per square foot for condos is $1,450 USD ($1,804 CD) in NYC vs. $543 CAD in Toronto. And yet this person wants to tell us that Toronto is LESS affordable than New York? Really? This means that the average income in NYC would have to be $267,148 CAD for their math to work, vs. $78,543 CAD in Toronto. According to the US Department of Labour, income in Manhattan is $2,749 USD a week, which is $177,823 CAD per year. That means it would take 7.4 times than income to buy the average property in New York. And Toronto’s median income, according to StatsCan is $71,210 for 2012. Which then puts us at 7.2 times income to buy the average property. While much closer than I had thought, their math is still wrong.

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Contact Laurin Jeffrey for more information – 416-388-1960

Laurin Jeffrey is a Toronto real estate agent with Century 21 Regal Realty.
He did not write these articles, he just reproduces them here for people who
are interested in Toronto real estate. He does not work for any builders.

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Summary
Toronto housing bubble showing no signs of bursting
Article Name
Toronto housing bubble showing no signs of bursting
Description
A recent survey by one of Canada's big banks suggests that the cost of renting or owning a home in the city of Toronto is climbing out of reach of most residents.

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