Toronto Housing Prices from 2010 to 2021 – What’s next?

It’s no secret the Toronto Housing market and real estate has boomed over the last decade and continues to do so. The question we’re so often faced with as investors and end-users alike is: “will Toronto real estate prices continue to appreciate?”

You might also be wondering: Is Toronto in a housing bubble? A relatively straight-forward question given all of the data for the underlying fundamentals is thankfully public. This includes historical sales statistics, new home supply, net population growth, etc.

In this post, we’re going to cover the basics of the Toronto house price growth history. By understanding previous real estate market patterns, this gives an insightful view of what will happen with the Toronto housing market in 2021 and beyond.

It’s important to point out that, naturally, all investors are “speculators”. Unless you get a kick out of losing money, the only reason you’d even consider investing in a given asset class in the first place is based on you ‘speculating’ that the market is going to go up. Therefore, by definition, all property investors are speculators.

The question, then, is do we have too many speculative investors? Moreover, too many investors who are so leveraged that should mortgage rates increase – they’d topple.

Secondly, – is the housing market appreciation fueled by supply and local demand, or are there external factors driving up competition and the Toronto home prices?

Let’s take a look at Toronto’s housing price history and price growth to determine the answer.

Also known as Economics 101. Most markets are driven by simple supply and demand at their core, and the housing market isn’t much different.

In Toronto, our rapid condo appreciation has been entirely at the hands of a stagnating supply and an exponential growth in demand. 

1. Supply: New Condo & Home Completions

Housing Supply is more readily measured and more absolute than demand. It’s simply a question of how many new homes were constructed/completed and added to the market pool in a given year. 

The graph below shows new pre-construction condos sold each year. A couple thousand get cancelled a year, and additionally, a few thousand detached get built as well.

2. Demand: Immigration Growth

Toronto and the GTA, in general, sees a ton of immigration every single year. The influx of residents comes primarily from out of the country but also intra-provincially. 

Immigration is by far the strongest indicator of demand. The need for housing increases proportionately to the net population gains. After all, everyone needs somewhere to live.

You’ll notice that months of inventory inversely correlates directly with average price. When we see months of inventory spike, we see home prices dip, and vice versa.

Clearly – right at the time of the Fair Housing Plan, and shortly after the Stress Test, we see the detached home price in the Greater Toronto area market swing very quickly from 1 month of inventory to 3-4 months of inventory. 

The detached buyer pool halved, literally overnight, causing that sharp decline in prices.

Here’s what happened with condo property type prices & inventory during the same timeline.

3. The Mortgage Stress Test Impact

The Mortgage stress test bit a 20% chunk out of your buying power with higher qualification standards – that’s a ton. It impacted the detached market negatively, and the condo market positively.

At a household income of $150,000, you’d be qualified for a $1M detached home prior to the stress test.

After the stress test? $835K – you’re now in the condo market, or you’re looking at a much longer commute.

The stress test was introduced to cool the housing market. The intention was actually to help out first-time buyers but it did the opposite. (2) Not only did it make it much harder to qualify for a mortgage as a first-time buyer with no existing home equity, but it also increased the demand in the Condo market, which is where most first-time buyers are looking.

5. Detached Home Prices in 2019

It’s fairly self-evident that the Stress Test & Housing plan triggered the detached price regression. With that said, the condo-to-detached price gap had grown to nearly 2.5X. So, it makes a lot of sense that the condo market cruised through it. Depending on the property type, there is a huge difference.

When you look at Toronto’s housing price history, or New York’s for that matter, you’ll find that two is the magic number for the condo-to-detached price multiple.

Meaning if the average condo will run you $500,000, the average detached should cost around ~$1,000,000. 

For much of our history, that’s where the multiple was. Between 2013 and 2016, the detached housing craze hit. The increase in demand caused the detached prices to inflate rapidly, while the Condo market appreciated at the normal historical 5-6%. 

Before long, the median multiple was 2.5X, making condos an exceptional deal.

Shortly after the stress test, which effectively reduced buying power of the marginal detached buyer by up to 20%, we saw detached prices correct downwards across the GTA. At the same time, we saw condo prices in the GTA rise by 15-25%, because they were now the most affordable entry into the market

Guess what? The effects of Covid have drummed up a similar situation in the pricing gap between detached homes and condos in Toronto – so we’re right back where we were pre-stress test. Once again, condos are in a ripe position for a strong run.

The current average detached price in Toronto as of August 2021 is $1.7M, while the average condo price is $700K – meaning we have a $1M gap between the two.

About Cheryl Salinas

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