Wealth managers continue to suggest Toronto’s housing market is in a bubble
How out of control is Toronto’s real estate market? According to one economist, it’s a bubble that’s grown larger than the one last seen in the 1980s.
And he’s not the first to make the comparison.
“Not only to have home prices in the GTA now absorb an unprecedented 13 years of median family income, but to have 30 per-cent-ish run-ups against a backdrop of a 2 per cent inflation rate, wages that are barely going up 2 per cent as well, and nominal GDP growth of around 4 per cent. This should put 30 per cent into some sort of perspective when we conclude that what we have on our hands is a near three standard deviation event,” David Rosenberg, chief economist with wealth management firm Gluskin Sheff + Associates Inc., wrote in a Financial Post column last week. “That alone qualifies as a bubble — if you don’t like that term, then call it a giant sud.
“In the past, Toronto home prices went up at an annual rate of 4 per cent in real terms, in the past year they have surged by nearly 30 per cent.”
Rosenberg’s comments follow another seemingly impossible increase in Toronto home prices.
According to the Toronto Real Estate Board, the average Toronto home sold for $916,567 – up 33.2% year-over-year in March.
And detached homes now cost an average of $1,214,422 – up 33% year-over-year.
That’s an even bigger price hike than January’s, which had one big bank economist drawing comparisons to the bubble of the 1980s.
“Prices in Greater Toronto are now up a fiery 22.6% from a year ago, the fastest increase since the late 1980s—a period pretty much everyone can agree was a true bubble—and a cool 21 percentage points faster than inflation and/or wage growth,” Doug Porter, chief economist for BMO Bank said in a report earlier this year. “And, the ratio of sales to new listings was a towering 93.5 in the region last month adjusted for seasonality (and was above 100 in Hamilton, Kitchener and the Niagara Region).”
For his part, Rosenberg argues the constriction of supply is even worse than the lack of supply experienced in the 1980s.
That tightness is due to homeowners refusing to sell, according to Rosenberg, because their assets are appreciating at such a fast clip.
“But you see, this is where the danger comes in: when people start to view their house as some investment as opposed to a home — a place to raise the kids and play with them in the backyard. A house is an asset indeed, but should never be compared to a stock or a bond or even other investable properties. It is a place to live,” he wrote.
“Unlike a stock, which you can sell anytime and tuck away the winnings, if you sell your house, well, you still need a roof over your head. A stock with a dividend gives you an income stream, as does a fixed-income instrument. Unless you are a landlord, your house is burning cash (utilities, property taxes, maintenance), not bringing in cash.”
And he’s not the first to make the comparison.
“Not only to have home prices in the GTA now absorb an unprecedented 13 years of median family income, but to have 30 per-cent-ish run-ups against a backdrop of a 2 per cent inflation rate, wages that are barely going up 2 per cent as well, and nominal GDP growth of around 4 per cent. This should put 30 per cent into some sort of perspective when we conclude that what we have on our hands is a near three standard deviation event,” David Rosenberg, chief economist with wealth management firm Gluskin Sheff + Associates Inc., wrote in a Financial Post column last week. “That alone qualifies as a bubble — if you don’t like that term, then call it a giant sud.
“In the past, Toronto home prices went up at an annual rate of 4 per cent in real terms, in the past year they have surged by nearly 30 per cent.”
Rosenberg’s comments follow another seemingly impossible increase in Toronto home prices.
According to the Toronto Real Estate Board, the average Toronto home sold for $916,567 – up 33.2% year-over-year in March.
And detached homes now cost an average of $1,214,422 – up 33% year-over-year.
That’s an even bigger price hike than January’s, which had one big bank economist drawing comparisons to the bubble of the 1980s.
“Prices in Greater Toronto are now up a fiery 22.6% from a year ago, the fastest increase since the late 1980s—a period pretty much everyone can agree was a true bubble—and a cool 21 percentage points faster than inflation and/or wage growth,” Doug Porter, chief economist for BMO Bank said in a report earlier this year. “And, the ratio of sales to new listings was a towering 93.5 in the region last month adjusted for seasonality (and was above 100 in Hamilton, Kitchener and the Niagara Region).”
For his part, Rosenberg argues the constriction of supply is even worse than the lack of supply experienced in the 1980s.
That tightness is due to homeowners refusing to sell, according to Rosenberg, because their assets are appreciating at such a fast clip.
“But you see, this is where the danger comes in: when people start to view their house as some investment as opposed to a home — a place to raise the kids and play with them in the backyard. A house is an asset indeed, but should never be compared to a stock or a bond or even other investable properties. It is a place to live,” he wrote.
“Unlike a stock, which you can sell anytime and tuck away the winnings, if you sell your house, well, you still need a roof over your head. A stock with a dividend gives you an income stream, as does a fixed-income instrument. Unless you are a landlord, your house is burning cash (utilities, property taxes, maintenance), not bringing in cash.”
