Oh no? Did the Toronto housing bubble just peaked?

Toronto Housing Bubble Expands 33% in March 2017

The official narrative goes something like this: there is a listings supply crunch in Toronto which led to double digit growth in  housing prices. Prices will continue to rise significantly until there is a marked number of homes available for sale.

Average home price in Toronto increased 33.2% in March 2017 over the same period last year. Let's say you own a million dollar house in the GTA. Why would you want to sell it now when it can go up in price by another 30% by March of 2018? If you wait a year, you could pocket another $300,000. That's probably several years of annual after tax income right there.

Listings crunch is a direct result of the housing bubble mentality. People will hold on to their homes for as long as they can, before they sell and downsize.

If housing is an investment, why would you want to sell, especially if it keeps growing at the fast rate to date.

Besides, most of the boomers have yet to cash in on their detached homes before they downsize. But can millennials afford it?

Back to the stats.

Interestingly the price growth was fastest in suburbia across all market segments. In fact town homes in the suburbs grew the fastest, with the average price up by a staggering 38.5%.

Average detached price in the City of Toronto was $1,561,780 in March 2017.
Average semi-detached price in 416 was $1,089,605.
Average town house price in 416 was $761,128.
Average condo price in 416 was $550,299.

Really insane amounts above considering that the median hourly wage in the City of Toronto was $22.00 in February 2017. That is less than $3,000 after tax. Five year fixed mortgage payment on an average condo in the 416 would eat all of your income.

More charts below:

Toronto Housing Bubble Summarized

In recent months there has been  talk of a housing bubble in Toronto due to the fact that home prices went up by over 27%  (year over year) this past month. CBC is warning of a late 80s-style bubble but I think it could be much worse.

Why? Two things: interest rates are already low and Toronto home prices were already in a bubble even before the recent double digit price spikes.

In the late 80's there was a  HUMONGOUS housing bubble in Toronto. Between 1985 and 1989 home prices in Toronto had more than doubled. Then came the crash. If you adjust for inflation home prices in Toronto fell by over 30% and in downtown Toronto values plunged by over 50%.

Fast forward to today and home prices, when adjusted for inflation, are more than 81% above the peak of the previous bubble. Are you scared yet? Well you should be!

Some say that the current prices are justified by the fundamentals - such as job growth, increased earnings and rising population. Surprisingly that is not entirely the case!

CMHC Declares Overvaluation in the GTA

As home prices in the GTA went up by over 18% in 2016 compared to a year earlier, CMHC did something unexpected.

It said  in a recent report (pdf) that: "moderate or elevated evidence of overvaluation was detected in Hamilton and the GTA..., indicating that some of the price appreciation was not driven by fundamental factors."

Is this damage control?

Seriously, I really don't understand CMHC. Let me explain why.

Between 2013 and 2015 the average home prices in the GTA went up by 17%. And that's fine according to CMHC. Because apparently - "this substantial increase was due mainly to favorable economic conditions, population growth and relatively low mortgage rates, which increased demand for housing and drove up prices." In other words, substantial price appreciation before 2016 was due to fundamental factors yet, as CMHC said, current price increases were not only driven by fundamental factors.  Really?

Let me show you a chart.

Canada Resembles US before the Housing Crash in 2007?

Vice has recently picked up the following chart with regard to Canada's housing market.

What's interesting about the above chart is how it compares housing market statistics of the US at the height of its bubble to the Canadian counter part.

Housing prices in the US with regard to income were still cheaper during the peak of the bubble than they were in Canada in 2015. In 2007 the home price to income ratio was 12.5x in the US and 16x in Canada in 2015.

Canadians also withdraw more money from their homes than the Americans ever did. Home equity line of credit withdrawals accounted for 12% of GDP in Canada in 2015 while the same number was 4.5% in the US in 2007. Scary.