Robin Wiebe – Toronto Star

Toronto’s hous­ing mar­ket has not received any­where near the atten­tion that has been paid to the Van­cou­ver mar­ket and its reputed hous­ing bub­ble. But it is easy to for­get that in the first half of 2010, the Toronto mar­ket was also per­ceived as a bub­ble ready to pop. At that time, sell­ers held sway and double-digit year-over-year price increases were recorded.

The good news is that the sit­u­a­tion in Toronto had noth­ing to do with spec­u­la­tion — which can lead to a bub­ble — but was dri­ven by eco­nomic fun­da­men­tals. Sales started to rise rapidly in the sec­ond half of 2009, boosted by low inter­est rates and the eco­nomic recov­ery that fol­lowed the finan­cial cri­sis. Also fuelling sales was the antic­i­pa­tion of tighter mort­gage rules. Since sell­ers were still cau­tious about putting homes on the mar­ket fol­low­ing the reces­sion, home buy­ers had rel­a­tively few units to pick from.

With hous­ing demand exceed­ing sup­ply, it is not sur­pris­ing that prices soared by about 19 per cent over the win­ter of 2010, to the delight of sell­ers, whose reac­tion was to put their homes on the mar­ket. By spring, the increased sup­ply was begin­ning to trim price growth, although it remained in dou­ble dig­its for sev­eral more months. Around the same time, mort­gage rules were tight­ened. Buy­ers, already spooked by big price hikes, retreated from the market.

Sales plunged — so did growth in prices. In the fourth quar­ter of 2010, annual price growth was closer to 5 per cent. That got some ana­lysts ner­vous that the hous­ing “bal­loon” was about to burst. But in truth, the mar­ket reacted exactly as the eco­nomic fun­da­men­tals would dictate.

Sales have edged higher and annual price growth has exceeded 8 per cent in recent months. Once again, list­ings are begin­ning to rise, which is expected to slow price growth. There­fore, Toronto’s mar­ket is not only bal­anced, but is also per­ceived to be bal­anced by most, and no one is talk­ing about a bub­ble anymore.

In truth, there was never a seri­ous bub­ble threat in Toronto. Even in Van­cou­ver, the spec­u­la­tion about a hous­ing bub­ble is overblown. Ear­lier this year, the Con­fer­ence Board demon­strated that much of the increase in aver­age house prices in Van­cou­ver has to do with a surge in sales of high-end homes.

Toronto’s hous­ing mar­ket has a bright future, given expected strong pop­u­la­tion growth. The future of the mar­ket likely will see increas­ing den­sity. For now, single-family units still make up about half of all sales in Toronto. Dur­ing the first half of 2011, sin­gles’ median price was up about 8 per cent from a year earlier.

How­ever, ris­ing prices and ever-increasing com­mut­ing times have spurred inter­est in more afford­able mul­ti­ple — fam­ily units, which are fre­quently located closer to the down­town core. One should expect the share of multiple-family unit sales to keep ris­ing. Multiple-units are also attrac­tive to Toronto’s con­stantly grow­ing immi­grant com­mu­nity and to the elderly, who will make up an increas­ing share of the population.

One class of multiple-family units that will con­tinue to attract atten­tion in Toronto — because of mind-boggling top-end prices — is apart­ment con­do­mini­ums. Recent per­for­mance in this seg­ment has been mixed. In 2010, builders com­pleted new units faster than they were sold, bloat­ing inven­to­ries. These units com­peted with resale apart­ments, cut­ting growth in the median apart­ment price to less than 5 per cent by late 2010. New unit inven­to­ries are now eas­ing, and, given demo­graphic pat­terns, the long-term out­look for con­dos in Toronto is healthy.

The bot­tom line: eco­nomic fun­da­men­tals work. House prices reached double-digit growth when demand was much stronger than sup­ply. As sup­ply and demand lined up, growth in house prices slowed. The only thing that popped in Toronto was the fear of a hous­ing bubble.

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Con­tact the Jef­frey Team for more infor­ma­tion – 416−388−1960

Lau­rin & Natalie Jef­frey are Toronto Real­tors with Cen­tury 21 Regal Realty.
They did not write these arti­cles, they just repro­duce them here for peo­ple
who are inter­ested in Toronto real estate. They do not work for any builders.
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