The word bubble is often used to describe the incredible run up in prices that the Toronto and GTA housing market has experienced during the last 10-15 years. The fact that if you bought a house in 2009, it has, on average, more than doubled in value – if not tripled – makes it hard to criticize the notion that we are in a housing bubble.
The Toronto Real Estate Board (TREB) released statistics today that note home sales in the GTA dropped 20.3 per cent in May (compared to May 2016). Many are calling this the beginning of the bubble burst, and that prices will soon drop too. It should be noted that during May, prices still climbed 14.9 per cent from the same month last year.
Already, most major news outlets are not only suggesting, but claiming that the market is cooling. Take the Globe and Mail’s article today: Toronto’s housing market feels chill from provincial measures. In this article, the Globe puts forth a similar, chilling reality that since the month over month prices from April to May 2017 actually dropped for homes in the GTA, the new provincial measures must be cooling the market. Further into the article, quotes from TREB staff note that inventory is still low, and the drop in home sales is likely a cautionary reaction to the provincial measures introduced in April.
The graph below, from the Globe article, presents some interesting statistics:
Basically, while sales have dropped significantly, prices have continued to climb year over year. The prices, however from April 2017 to May 2017 actually saw a decline.
One look at more articles on this subject, and particularly in comment sections and on social media, would make you think “the party is over.” Many are lamenting the beginning of the end for the unabated run up of the GTA housing market.
The reality is that this – at most – will be a slight and brief dip. Prices might go down month over month for a few months, but that is about it. The reason? There are countless people, myself included, who have been quietly saving money and have amassed a sizeable amount, hoping for a crash.
Talk to older millennials, people who have decent jobs but have simply been priced out of the GTA market. Many will tell you something along the lines of “Oh yeah I’ve got so much ready for a down payment, I’m just waiting for the crash so I can jump in.” We’re talking tens of thousands of dollars, if not $100,000. Literally thousands of people are in this boat. This alone ought to help you understand that a crash is not coming. If the prices do decline for more than a few months, there are a lot of people who will jump right into the market.
This is of course in addition to the continued immigration that the GTA will experience. The region will continue to see 100,000+ new residents per year, and all of these people need places to live. You can bet, as has been the case for a couple of decades, that those who can afford to buy a house or condo, will buy.
At most, we’ll get a dip in the housing market, but no crash is coming with the current interest rates. Given the reported statistics that a million Canadians couldn’t handle a one point interest rate hike, the Bank of Canada is not likely to raise rates any time soon. In my mind, a rate hike is the only thing that has a chance of cooling the housing market. Since it would financially destroy so many people and probably wreck the economy, don’t count on the government entity BOC to raise the rates.
So sit back, the dip will be gentle and easy to weather, and a year from now, we’ll still be saying “I wonder when the market will crash!”