Is it a bubble? Maybe. Maybe not. But you can’t ignore a 23% price increase!
I joined a real estate industry in 1999 and since that time, the concern that I have heard over and over again from buyers was the possibility of a repeat of the terrible 1989 housing crash. Prior that crash, from 1985 to 1989, the average price of a house in the GTA increased by 113%. In other words, the market experienced an unprecedented growth of 20% per year, over those five years. How did it happen? Basically, you can put it down to the low unemployment rate in the 1980s and large influx of immigrants to the area, which helped to create the bubble.
When I ask homeowners why they think it happened, the answer is always something like: “Everybody thought that they had to buy a house; it sounded like the best investment.” People were buying and selling houses, hoping to make a fortune. The consequence, however, was an artificial increase in demand.
Sound familiar? This year, the average house price in Toronto increased by 23%. Developers decided to profit on this market by building condos, mostly in downtown Toronto.
During the peak of the bubble in the mid-80s, the mortgage rate reached 12.7% (does not look like 2.8% mortgage today!) Coupled with the early 90s recession, a spike in unemployment and a drop in the inflow of immigrants to the area, housing prices in the GTA collapsed. Between 1989 and 1996, the average price in the GTA declined by 40%. Downtown Toronto was hit the worst with an over 50% decline in the value of a home. It took 13 years for the average price to recover in the GTA.
So, what’s different in today’s Toronto real estate market? Should be worry about it? Is it a bubble? You can always find warnings and red flags, but what is a real picture and why do people pay more and more for a home in Toronto ?
Reason Number 1
Our city is growing. The population of Toronto has increased by 200,000 over the last 10 years. From 2.6 million to 2.8 million, in 2016. Not as fast as we thought it would be, but it is still growing.
The population of the GTA as a whole has increased by 1 million from 5.8 million to 6.8 million people.
Reason Number 2
Toronto is evolving into an attractive city for people to live in. We have good schools, luxury real estate, job opportunities, world class hotels, restaurants and cultural events.
Reason Number 3
Toronto is the preferred Canadian city to live and work in, particularly for young Canadians. Vancouver is nice, if you’re ready to retire. Montreal is great too, but there’s a shortage of quality jobs and you have to be fluent in French.
Reason Number 4
Thank you overseas investors for your willingness to invest in our city. Overseas buyers, particularly those hailing from China, are driving the Toronto real estate market today.
A few pieces of advice from a real estate professional:
- Watch what the overseas buyers are doing and do the same. They like properties in good locations better than money.
- Keep buying freehold homes in Toronto and GTA.
- Refinance your house or condo and use a fully tax deductible line of credit to invest in your second, third or more properties in Toronto.
Give me a call for the professional advice: what to buy and where to buy it. Remember that real estate is our biggest and safest investment. Not everyone can make million in our workplaces, but almost anyone can do it by investing right.
Love you all!
Hope to hear from you soon.