5 Reasons Toronto house
prices won't crash in 2016
naysayers insist the bubble has to burst sometime,
but no signs indicate it'll happen this year.
After the Greater Toronto Area's record year
in 2015 for both the number of homes sold and
the average price, the question is: when will
it all come crashing down? The answer: not in
2016. Here are five reasons why this won't be
the year of Toronto's housing collapse.
1. Supply and demand
It's the simplest rule of market
economics and it applies to Toronto's real-estate
market. The population keeps growing, and people
have to live somewhere.
There's little room to build more single-family
houses to increase the supply. The demand from
families who want to live in the city with a patch
of grass remains huge. The number of new listings
on the market continues to be outstripped by the
number of buyers.
As for Toronto's condo market, it's a myth that
it's oversupplied: the inventory of unsold condos
is shrinking, and with first-time buyers nearly
priced-out of the house market, the demand for
condos remains steady.
"I don't see the market falling at all in
2016," said John Pasalis, president of Realosophy,
a Toronto real-estate firm. "We're getting
further into this imbalance where demand is exceeding
the supply of houses coming on the market."
"Usually when the market's slowing down
and prices fall, you can see signs of that well
ahead of time," Pasalis said in a phone interview.
"When you look at the momentum in Toronto's
market, it's not going in that direction."
2. It's the economy, stupid
If the economy shrinks, jobs disappear
and people are forced to sell their homes. Supply
goes up, demand is down, so prices drop. This
has happened twice in Toronto in the past 30 years:
a quick dip in the 2008 recession, and a deep
collapse in the early 1990s recession. There is
no recession on the horizon for the GTA in 2016.
"The fundamentals facing Toronto's housing
market are generally quite decent," said
Robin Wiebe, a senior economist with the Conference
Board of Canada think-tank. It forecasts economic
growth of 2.8% for the metropolitan area in the
coming year and predicts employment will grow
Ontario's economic growth has actually been rather
sluggish the past six years, yet Toronto's house
prices have just kept soaring. The average sale
price in 2015 was 64% higher than in 2008. So
even if the economy sputters, house prices are
unlikely to tank.
3. Mortgage rates will rise, but
It's telling that the Royal Bank's
announcement that it will push some of its mortgage
rates up by just 0.10% on Friday actually qualifies
"It would take quite a significant increase
in mortgage rates to trigger a crash," said
Sherry Cooper, chief economist at Dominion Lending.
"I don't think interest rates are going to
"We forecast interest rates will be relatively
benign through 2016," said Wiebe. For Toronto's
housing market to crash, "you'd have to see
a really large spike in interest rates or a really
large drop in employment," he said. "It
always could happen but that's not what us or
anybody else frankly is expecting."
4. There is no 'bubble' to burst
You've heard it before: the bubble
has got to burst. Investment expert Hilliard Macbeth
predicted last spring that Canadian houses prices
will crash by as much as 50%. David Madani, the
Canadian chief economist of global forecasting
firm Capital Economics, warned of a housing price
slump back in 2011. He did it again in 2013. And
he did it again last spring. Financial author
Garth Turner has been predicting a crash steadily
since 2009, when the market rebounded following
"Toronto's not a bubble by any definition,"
Wiebe described a bubble as "when people
buy houses purely for speculative reasons, with
the sole motive of making money." He said
that's not what's driving Toronto's market now.
The time that Toronto's bubble truly burst was
in the early 1990s. That followed a crazy period
when the average house price doubled in just three
years. GTA house prices have not risen at anywhere
near that pace anytime in the past two decades.
5. Affordable housing options remain
There's no question it's getting more difficult
to afford a house in Toronto, with prices rising
so much faster than incomes. But Wiebe points
out the average price of a condo is roughly half
that of a single-detached house. "If somebody
is looking for a single detached home in the old
city of Toronto, it's going to be expensive, but
that is not the only housing solution available."
"I don't think we'll see a crash because
the average household is still in good financial
shape," said Cooper. "Yes, it's true
that debt-to-income ratios have risen, but household
wealth has increased more than household debt."
"Most people still want to own their own
home," she added. "They may have to
have a much longer commute to work and live in
much smaller space but I don't think the basic
psychology is going to change."
Cooper predicts Toronto housing prices will rise
in 2016, just more slowly than in the past few
--- Credits for this article go to Mike Crawley
· CBC News. January 7, 2016