Good news, Toronto! When the housing bust comes, it will suck less for us than it will for Vancouver, Montreal, Edmonton and Calgary
Griping about expensive housing is as traditional a sport in Toronto as griping about the TTC or the Leafs. In the past year or two, that kvetching has been supplemented with a healthy dose of worry over how bad the price drops will be in Toronto when the correction inevitably comes. No less than New York Times columnist and Nobelist Paul Krugman has warned, “Canadians spend too much relative to their household incomes, and the country’s housing bubble has yet to burst.” A new report from the Canadian Centre for Policy Alternatives attempts to give us some idea of what the carnage will be like. The good news is that, for Toronto at least, the drops will be relatively modest.
The increase in Toronto housing prices since their last stable value in 1998 has been moderate compared to other Canadian cities. The potential decline under [the most optimistic] scenario would be relatively small compared to other cities, with average prices declining by 9%, from $420,000 to $382,000.
Now, taking a $40,000 loss on that semi-detached in Riverdale may not sound like a walk in the park, but in percentage terms, it’s not so bad. Cities out west have it much, much worse (as does Montreal): they’re looking at declines that are at least twice as bad. Even in the more pessimistic scenarios, Toronto sees 20 per cent declines, while Calgary and Vancouver both see drops of 30 per cent, and Edmonton sees almost 40 per cent.
The CCPA looked at only one major city in Canada that fares better than Toronto: Ottawa, but of course that comes with costs, as well (i.e., living in Ottawa). Will Toronto become even more smug than before when our houses are still worth more as homes than as firewood? Only time will tell.
• Canada’s Housing Bubble: An Accident Waiting to Happen [CCPA]
• Housing bubble may soon burst: group [CBC News]
• Housing bubble threatens in six cities: Report [Toronto Sun]
• Housing prices due to fall, says think-tank [Toronto Star]
![](http://www.facebook.com/sharer.php?u=https://torontolife.com/real-estate/good-news-toronto-when-the-housing-bust-comes-it-will-suck-less-for-us-than-it-will-for-vancouver-montreal-edmonton-and-calgary/&title=Good news, Toronto! When the housing bust comes, it will suck less for us than it will for Vancouver, Montreal, Edmonton and Calgary&picture=https://torontolife.com/wp-content/uploads/2010/08/CCPA-Housing.jpg&description=[caption id="attachment_37155" align="alignleft" width="400" caption="One of the scenarios for the next four years imagined by the Canadian Centre for Policy Alternatives (Source: CCPA)"][/caption]
Griping about expensive housing is as traditional a sport in Toronto as griping about the TTC or the Leafs. In the past year or two, that kvetching has been supplemented with a healthy dose of worry over how bad the price drops will be in Toronto when the correction inevitably comes. No less than New York Times columnist and Nobelist Paul Krugman has warned, “Canadians spend too much relative to their household incomes, and the country's housing bubble has yet to burst.” A new report from the Canadian Centre for Policy Alternatives attempts to give us some idea of what the carnage will be like. The good news is that, for Toronto at least, the drops will be relatively modest.
The increase in Toronto housing prices since their last stable value in 1998 has been moderate compared to other Canadian cities. The potential decline under [the most optimistic] scenario would be relatively small compared to other cities, with average prices declining by 9%, from $420,000 to $382,000.
Now, taking a $40,000 loss on that semi-detached in Riverdale may not sound like a walk in the park, but in percentage terms, it’s not so bad. Cities out west have it much, much worse (as does Montreal): they're looking at declines that are at least twice as bad. Even in the more pessimistic scenarios, Toronto sees 20 per cent declines, while Calgary and Vancouver both see drops of 30 per cent, and Edmonton sees almost 40 per cent.
The CCPA looked at only one major city in Canada that fares better than Toronto: Ottawa, but of course that comes with costs, as well (i.e., living in Ottawa). Will Toronto become even more smug than before when our houses are still worth more as homes than as firewood? Only time will tell.
• Canada's Housing Bubble: An Accident Waiting to Happen [CCPA]
• Housing bubble may soon burst: group [CBC News]
• Housing bubble threatens in six cities: Report [Toronto Sun]
• Housing prices due to fall, says think-tank [Toronto Star]){kind=link}
What separates well-paid Economists from the rest is not how good their predictions are, but how well they tell a story. Economics as an industry is not about being right, because frankly they almost never are, it’s about being able to provide comfort and reaffirmation of the opinions of whomever is paying the bills.
Every month for the last 5 years, some new study by some think tank says that real estate is a bubble waiting to burst. They proceed to present their opinions of what will unfold as facts, and the bears take great comfort in hearing respected, like-minded Economists agree with their view. Unfortunately their track records speak for themselves. If they keep repeating the bubble mantra then perhaps eventually they will be right. It’s like what they say about a broken clock, it’s right twice a day.
I love how Toronto Life perpetuates Toronto’s reputation as snobbish by putting down cities like Ottawa, or even attacking its own (Scarborough). In the grand scheme of things, Toronto is barely the “Scarborough” of the world’s major cities. Toronto will never be important on a world scale, so rather than put other fine Canadian cities down, you should be trying to raise others up. It’s more becoming – might as well be nice and irrelevant, rather than delusional and irrelevant.
More germane to the article, there is no risk of a major bubble in Toronto real estate. Mortgage underwriting is extremely solid, good housing supply is limited in Toronto, and the economy is stable. All the jobs lost in Canada since the start of the global recession have been replaced, unlike most of the world’s developed economies. Prices may fluctuate, but there is no bubble – you need far more leverage in the system to have any risk of that. Risky Canadian behavior is an oxymoron – it’s like saying Cool Toronto.
As a former Toronto and Canada resident who lived through the last real estate bubble in the early 1990’s and the hyperbole that went this, my recent visit to Toronto was an opportunity to look carefully at current trends.
From this perspective historically low interest rates, a US economy in increasing trouble and an international environment where leverage is being reduced all point to lower asset including real estate prices.
While Canada has fared well in the current crisis helped by its commodity base and reasonable fiscal policies it is still dependent on US and absence of any real estate correction at the same time as household debt levels have reached elevated levels means that all the risk is on the downside.
I was particularly flabbergasted at the amount of condo developments downtown and the marketing job going with this. The volume of supply is reminiscent of the ‘last time round’ when things got really nasty in several markets. Indeed hotel conversions into condo’s were the last signal that the bubble was going to crack in the NYC market. I was pulled up short to see the King Edward …
Prognosis: – loss of market momentum from here on with gradual declines and stories of people landed with condo’s being unable to sell at anything approaching purchase prices. High interest rtaes will also bite. Expect price decline of 20-25% and stagnation going forward. Hey, remember the 90’s.
The one positive is that the financial sector is in good shape even if the public via CMHC is also responsible for the real estate mess, which is another story and hopefully not to be repeated.
Finally, US market will remain in terrible shape and don’t be fooled by Florida where economy is bombed out and prices are still far too high by any metric.
There is no question that the US growth recession (defined as a positive, but only marginally so, GDP) will have consequences for Canada, but remember that trade is actually a net negative to the Canadian economy – that is Canada runs a trade deficit, not surplus, so the impacts on Canadian GDP will be muted. In addition, developing economies continue to have strength, and Canada has a lot of what they need in terms of oil, potash, nickel, etc. So in terms of the macro economy impacts to the housing market, it is clear that Canada has far less headwinds than what the headlines state.
Interest rates are low in Canada, and will remain accommodative, even if the BoC raises them. There is some potential for excessive speculative activity in the condo market, but even there the population growth in the GTA is a supportive factor. The 1990’s bust was driven by rampant speculation, but even then, the market had a sharp correction and went sideways for less than a decade before demand absorbed any excess. That is not a bubble.
People, there is no housing bubble in the GTA. The leverage is simply not in the system to support this assertion. The reason why individuals spend a lot of their income on housing is because they have confidence in their job conditions. This by itself is not an unhealthy statistic. In fact, this is exactly what the US economy needs to reflate.
If banks begin giving loans with no money down to individuals with no proof of employment, we can start to talk about a real bubble. The current topic I believe is more about relative valuation, than a real speculative collapse in the real estate market. It makes me laugh to hear how Canadians try to replicate US problems on their doorstep when your economy has simply not been engineered or geared to have such calamities.
Was at Toronto Board of Trade meeting last week.
Does anyone know that all the large developers and Real Estate Investors have gone short. Unfortunately this time around will be worse that the early 90s. We are looking at a major correction and nothing can be done about this. Advice and you can take this to the bank. Sell everything and go LIQUID. This will be ugly like nothing you have ever seen.
If you have more than 60% of net worth in real estate then say goodbye……Sorry but the bubble has burst and its down down down………….
And here we are 3 years later