It's no secret that the Toronto housing market has experienced a significant boom in the past decade, leaving investors and potential homebuyers to ponder what lies ahead. Will Toronto real estate prices continue to rise? Is there a housing bubble in Toronto? These are the burning questions that need answers. In this article, we will delve into the historical growth patterns of Toronto housing prices and shed light on the future of the Toronto housing market.
A Historical Perspective
To understand the future of the Toronto housing market, it is essential to analyze its past. The graph below provides a clear picture of Toronto's housing price history, showing both detached and condo price trends over the years.
Image: Historical Toronto Housing Graph Index
At first glance, the detached price trend might indicate a housing bubble. However, it is crucial to consider the broader context and the underlying factors that contribute to price fluctuations. Comparing Toronto's price history to a textbook example of a housing bubble reveals some interesting insights.
Image: Condo Affordability
While the detached market experienced a dip, the condo market saw both a price increase and a decrease in inventory. It's important to note that graphs provide a simplified representation of data and do not capture the underlying intricacies. Factors such as government interventions and market fundamentals play a significant role in shaping housing prices.
Supply and Demand
One of the fundamental principles driving the real estate market is the relationship between supply and demand. In Toronto's case, the rapid appreciation in condo prices can be attributed to a limited supply and a surge in demand.
Supply: New Condo & Home Completions
When analyzing housing supply, it is essential to consider the number of new homes constructed and added to the market. Toronto typically completes around 30,000 new homes each year, as depicted in the graph below.
Image: Population growth in Toronto
Demand: Immigration Growth
Toronto attracts a significant number of immigrants every year, both from other countries and within the province. Immigration is a strong indicator of housing demand, as the population growth directly correlates with the need for housing.
Image: Population growth in Toronto 2019
The net population gain due to immigration in Toronto in 2018 alone exceeded 77,000 people. This influx of residents requires housing, driving the demand for homes in the city.
Historical Toronto Housing Price vs Months of Inventory
Months of Inventory is a metric used to measure the balance between housing supply and demand. When the market has less than four months' worth of inventory, it is considered a seller's market, leading to price increases. Conversely, a market with over seven months of inventory is a buyer's market, where prices stagnate or even decrease.
Image: Median rent in Toronto graph for the fair housing plan increase
The graph above shows the inverse relationship between months of inventory and average housing prices in Toronto. When months of inventory spike, home prices tend to dip, and vice versa. Notably, the implementation of the Fair Housing Plan and the Mortgage Stress Test caused a decline in detached home prices, while condo prices remained stable.
The Mortgage Stress Test Impact
The Mortgage Stress Test, which tightened mortgage qualification standards, had a considerable impact on the housing market. It reduced the buying power of potential homebuyers, affecting the detached market negatively but benefiting the condo market.
Image: Average Toronto Housing Prices from 1967 to 2024 - What's Going to Happen Next?
The stress test significantly impacted the purchasing power of first-time buyers, redirecting them towards the more affordable condo market. Consequently, condo prices in the GTA rose by 15-25%, while detached home prices regressed.
Detached Home Prices in 2019
The stress test and the Fair Housing Plan led to a correction in detached home prices in the Greater Toronto Area. However, the price gap between condos and detached homes narrowed, creating an opportunity for the condo market to thrive once again.
Image: Average Toronto Housing Prices from 1967 to 2024 - What's Going to Happen Next?
The Housing Supply Shortage
Addressing the housing supply shortage in Toronto requires a comprehensive understanding of the factors contributing to the issue. Although some may argue that the government should intervene, past attempts have proven ineffective. In fact, less government regulation could be the key to improving the supply side of the equation.
The lengthy and costly condo approval process, which can take 2 to 5 years, hinders developers from delivering housing units at a faster rate. Additionally, the significant increase in developmental charges over the past five years places a financial burden on developers, restricting their ability to meet the demand.
Conclusion
Toronto's housing market has experienced significant growth in recent years, driven by factors such as limited supply, increasing demand, and government interventions. While the market underwent corrections due to the Mortgage Stress Test and the Fair Housing Plan, the condo market remained resilient. The supply and demand dynamics, along with regulatory factors, play a crucial role in shaping the future of the Toronto housing market.
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References:
- Ontario News, Ontario's Fair Housing Plan. Retrieved from https://news.ontario.ca/mof/en/2017/04/ontarios-fair-housing-plan.html
- Tess Kalinowski, Is the mortgage stress test making Toronto's housing crisis worse? Retrieved from https://www.thestar.com/business/2019/06/10/is-the-mortgage-stress-test-making-torontos-housing-crisis-worse.html
