Friday, 23 August 2013

10 Signs that Toronto Has a Condo Bubble

1. There are almost twice as many condos under construction in the Greater Toronto Area than in New York - which has triple the population.

2. Between 50% and 70% of all new condos are owned by investors. 

3. There are 51,365 apartment units under construction in Toronto - almost twice as many as during the peak of the condo bubble in the late '80s. 

4. Home prices rose drastically higher than incomes in Toronto.

5. In many cases it's cheaper to rent a condo than to own it. 


6. Condo prices almost trippled since 1996.

7. Every year the population in the GTA goes up by approximately 100,000. What is interesting is that the fast growing population in the GTA facilitates the growth of a housing bubble.  You can read this scientific paper for the explanation as to why a fast growing population is necessary for housing prices to exceed fundamentals. Also, below is an example that demonstrates the relationship between fast a growing population and a housing bubble:

8. Lax lending standards. Specifically, the removal of $250,000 maximum insured mortgage limit and the introduction of 40 year / 0% down mortgage. Presently the low interest rates mask the real unaffordability of housing in Toronto.

9. Many condos were bought by real estate agents themselves. Canso investment suggests that many real estate agents own multiple condos. The picture below shows approximately 150 real estate agents and brokers camping in front of Beyond the Sea condominium sales center.

10. Condo inventory is rising. Current inventory is close to record high - above 22,000 units as of July, 2013. Note the graph below is not updated to show the most recent inventory. Also note that most of the inventory is not built yet, which is good!

BONUS Sign #11 comes from Bank of Montreal advising prospective condo buyers to Rent:

"All in, we suspect there is sufficient overbuilding in Toronto’s condo market to depress prices moderately in coming years, though probably not enough to trigger a material correction, barring a recession or further spike in mortgage rates. For people looking for a place to live, unless you believe prices can keep pace with inflation in coming years—a dubious prospect given the oncoming supply—you are probably better off renting" - Sal Guatieri, Senior Economist at BMO


Toronto Housing Bubble Summarized

New Home Sales in Toronto 40% Below Ten Year Average

Ultimate Guide To Housing Bubbles Around the World



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