At least one big bank economist is willing to come out and say it: The Toronto real estate market looks like a housing bubble.
“Let’s drop the pretense. The Toronto housing market — and the many cities surrounding it — are in a housing bubble,†Bank of Montreal chief economist Douglas Porter wrote yesterday in a research note.
Home prices in Greater Toronto were up 22.6 per cent in January compared to the same month last year, according to the Toronto Real Estate Board. The average Toronto home now costs $770,745. And prices are skyrocketing pretty much in any town from which one could conceivably commute to Toronto. In Guelph, a 1.5-hour drive away when traffic is good, the average home price shot to $475,717.
That’s what BMO economists call a bubble.
“Everyone may have a slightly different definition of what a bubble is, but most can agree it’s when prices become dangerously detached from economic fundamentals and start rising strongly simply because people believe they will keep rising strongly, encouraging more buying,†reads the bank’s report.
More importantly, housing bubbles sometimes burst.
So what does a bubble mean for prospective buyers, sellers and homeowners?
“My husband and I bought a house in 1988, at the top the market then, but we’re still in it and we’ve been fine,†says Marisha Robinsky, a sales representative at Bosley Real Estate in Toronto.
Despite their ups and downs, real estate prices generally trend upward over the long term. So if you’re in your house for the long haul, you should be OK, says Robinsky.
Keep in mind, however, that if housing prices crater, it might take decades for them to climb back up.
The chart below, which Robinsky compiled based on TREB data, suggests that someone who bought at the peak of the market in the late 1980s (like Robinsky herself) had to wait 20 years before home prices fully recovered:
If you need a house to live in and can afford one, don’t try to time the market by waiting on the sidelines, says Robinsky. It rarely works.
Toronto has been abuzz with housing-bubble talk for a decade, but prices are still climbing.
