Toronto Real Estate Housing Bubble

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Playing soccer and talking about the Toronto real estate market and possible housing market bubble usually don’t mix. But anything is possible. Last month while I was in Punta Cana attending the 2012 Mortgage Centre’s Annual conference, Avery Shenfeld, Chief Economist of the CIBC, and I were deadlocked in a seriously competitive game of beach soccer. Our opponents were a team of chest height 14 year olds from Brazil. Despite our best efforts Avery and I couldn’t avoid an inevitable defeat at the hands of the boys from Brazil. Dejected and out of breathe,  Avery and I decided to walk it off and went for a stroll along the beach.

It was only a matter of time before the casual conversation turned to Canadian real estate. Along the way he shared some insights with me about housing prices and the dreaded “B” word. Bubble.  There are two things Avery explained to me that have put my mind at ease regarding the over heated real estate market.

A Balanced Real Estate Market

Anybody who has recently braved the real estate market especially here in Toronto is probably well aware that the market has been slightly favoring sellers. That trend will likely change in 2012. Over the last two months the sales to new listings ratio, an important metric used by economist to determine whether we are in a buyer’s market or seller’s market, has started to ease off and the expectation is that the market will continue to balance itself in 2012.  There are a number of reasons including the possible tightening of mortgage rules (more to come on that topic on this blog), concerns about purchasers affordability being maxed out and over supply in the market. If you look at the graph below you will see that the sales to new listings ratio is hovering around the 50% mark, a good indicator of a healthy real estate market.

Housing Inflation

Avery also explained to me that housing inflation, another indicator used to check the health of a real estate market, was trending back towards zero. House inflation is a measure used to determine year over year (y/y) how rapidly housing prices are increasing. The current y/y % change is around 4.8% as of the 3rd quarter of 2011. Globally Canada has some of the hottest real estate however economists are expecting prices to level off spring 2012. Ultra-low interest rates are still attracting buyers, but increased economic uncertainty combined with job loss and unemployment could effect the numbers in 2012.

By the time Avery and I made it back to our resort his message was clear regarding Canadian real estate in 2012. Things could be better and they could be worse. 2012 appears as if it’s going to be a flat year.

Personally I think this is great news because the numbers are showing that Canada is not experiencing a real estate bubble and that things look like they are easing softly in what has been a somewhat over heated market over the past 24 months.  A sentiment that is starting to be shared in the media most recently Canada Housing Is Pricey But Far From A Bubble: BMO

What do you think? Do you have an opinion about Canada’s real estate market? I’d love to hear your comments. Feel free to drop me a line below.

Be Social


Christopher is a second-generation mortgage broker. Following in his dad’s steps, he helps borrowers demystify mortgage financing. Christopher lives in Toronto and when he is not in the office you’ll find him sailing on Lake Ontario.
Be Social

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8 Comments Post a comment
  1. Feb 3 2012

    Well DONE! Well researched! Writing is first class!

    You are the source of the content that drives readership and fresh eyes!

    Thank you for your insights.

    David Pylyp

  2. Feb 3 2012

    Thanks for your encouragement David. Much appreciated…

  3. Natascha Pieper
    Mar 27 2012

    Excellent read. Great sources and valuable info. Love your blog page!

  4. steve
    Apr 3 2012

    Well written to be sure, but way off.

    Your first chart “balanced market” will only reflect a change after a bubble pops as all it is really measuring is the collective sentiment of buyers vs sellers. If we are in a bubble this sentiment is largely unchanged. Nortel would look balanced prior to its crash using this method…only once people start to flee would this metric begin to skew.

    A more useful metric would be the average price to disposable income ratio, or price to rent ratio. Both of these have diverged from historical means in recent years. This doesn’t mean the party will end soon…but one can always hope.

  5. Arthur
    Apr 9 2012

    Also missing here is the analysis of house prices (corrected for inflation) in relation to the trend line going back 50 years. Every time the average price has swung way about the line (1960, 1974 and 1989) it was followed by a long period of time below that trend line on prices. Right now the average prices are way above that line and at least as high as in 1989 if not more. Not many people entering the market today had any interest in what happened 20 years ago, or care to remember for that matter. Back then everyone said it would be going up forever. Mathematics works in our favour the best when you come up with your own answer, even if it is wrong!

  6. Apr 9 2012

    Thanks for your comment Steve… point taken regarding the first chart showing buyers to sellers. I was trying to address the concern that prices are being driven up by more demand than supply.

    I’ll see if I can dig up an average price to disposable income ratio graph. I suspect it will be very revealing.

  7. Apr 9 2012

    Thanks for commenting Arthur. As you may be able to tell from the name of my blog Son Of A Broker I do work with my father who is of a much older generation and has a memory of the times that you are speaking of. I think it is tremendously insightful to have reminders of events in the past. My father is certainly concerned about the future and where this road is leading us. It will be interest to see how this all unfolds over the next 18 months.

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