Looks like Toronto is in housing bubble trouble again, according to the 2019 UBS Global Real Estate Bubble Index.
Apparently, Toronto is at greater bubble risk than Hong Kong or Vancouver. In fact, Munich is the only area in the study that is at a greater bubble risk than Toronto.
From 2000 to 2018, home prices in Toronto and Vancouver increased by an average of 5% a year, says UBS. But, the study also says that Toronto and Vancouver’s “housing frenzy” is over. Over the last four quarters, home prices have stalled and a correction has set in.
Canadian home price growth has been slowed by the foreign buyer’s tax, vacancy fees, and rent control measures. UBS says that further housing market weakening is likely in Canada, despite the low mortgage rates.
In Toronto, home prices nearly tripled between 2000 and 2017. When looking at just Toronto, a major price correction is unlikely thanks to improving mortgage conditions and the low supply. Healthy population growth and other market fundamentals point to strong demand, and with strong demand and low supply, home prices should stay steady.
According to the study, it would take a “skilled” worker approximately six years to save for a 650 square foot home in Toronto. It would take around eight years to save for the same home in Vancouver. Six years is actually pretty affordable compared to other cities included in the study. Milan, Los Angeles, Boston, and Chicago are the only markets below Toronto. Hong Kong tops the list with a skilled worker needing to save for more than 20 years to afford a 650 square foot home.
The UBS study doesn’t mention the mortgage stress test as a factor that influenced the activity slowdown in Canada over the last year and a half, but it’s safe to say that some buyers were sidelined by the stricter lending rules. Now that buyers have adjusted their expectations and budgets, sales activity is starting to pick up steam.
For a bubble to burst, supply must increase while demand decreases. With demand forecasted to remain strong and basically nothing being done to improve housing supply, is Toronto really at bubble risk?