The immense disparity between supply and demand when it comes to real estate in Canada’s biggest cities is well understood, and most people are similarly aware of the potential for a bursting of the housing ‘bubble’ in both the metro regions of Vancouver and Toronto most notably. Recently, however, economists have pointed out a trend where the bubbles – and the exorbitant prices on real estate fueled by speculative purchases – are now encompassing the satellite regions of these cities as well.
Here at Real Estate Leads, our primary focus is on providing a way for realtors to get more business leads but we’re also keenly aware of the extent to which the market and its dynamics factor into the success of the very people we’re marketing our product to. Accordingly, developments like this are of interest to us, and we think this particular one is especially deserving of some note.
Big Time Heat Up Around Toronto
Average home prices in some regions surrounding Greater Toronto have jumped by 40 to 50% in the past year, and with it has come a rapidly-spreading price bubble: The fastest price growth was seen in the areas surrounding Toronto, rather than in the metro area itself. This of course is a result of prospective homeowners who’ve been priced out of the GTA now looking increasingly farther in search of more affordable housing.
Prices have been inflated due to more bidding throughout the Golden Horseshoe. and with that comes the same trend that’s always attached to such phenomena. Homes and properties that are selling for more than they are truly worth, and individuals and families assuming dangerous levels of household debt.
Insiders report prices in the areas surrounding the GTA increasing at an even faster pace than they have within the GTA. And this article from the Province in Vancouver indicates that the same super-inflated status applies to the suburban areas around Vancouver too.
In both areas, strong fundamentals are holding up the region’s housing market. Mortgage rates are low, job growth is strong and there is considerable added pressure coming from foreign buyers. Still, these fundamentals cannot readily explain the pace of the price increases seen in the satellite cities of Toronto and Vancouver over the last 18 months.
What it is, quite plainly, is a ramping up of the real estate speculation that the foreign buyer taxes were supposed to temper. There are rumours that certain provincial governments (and it’s not hard to assume that BC and Ontario are the ones in discussion) are considering a speculative buyers tax to complement the existing foreign buyers taxes brought in by each government within the last year. Each has had a positive effect in cooling the market, but those who said it would be a temporary reprieve seem to have been correct – the market is now picking up again, and particularly for condos and town homes.
Of course, the question becomes how effectively such a policy could be enforced, unless whether or not the home was lived in or rented was vigorously verified in each case.
Prices Outstripping Rents
Look no further than condo prices as signs of speculation in these cities’ housing markets. Property prices have been handily growing faster than rents, making real estate investments less lucrative. Despite this, the pace of investing has sped up immensely. This creates a potentially “destabilizing” environment and something that gives the banks considerable concern.
That concern, defined specifically, is this; when expectations reverse and prices recede, investors may quickly sell their assets, possibly leading to fire sales with adverse consequences for the rest of the market. Should a correction to Toronto’s and / or Vancouver’s housing market occur, it’s’ bound to have negative ramifications, and in particular with its connection to household indebtedness and how homeowners could find themselves disadvantaged big time with the value of their home having dropped significantly.
Banks say there is a “moderate” chance of a housing correction in Toronto and Vancouver. It would hurt the country’s economy and destabilize the financial system, and would also be a drawback for real estate agents and the vitality of the industry as a whole.
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