How Risky is the Toronto Housing Market?

How Risky is the Toronto Housing Market?

For years, we Canadians have been enjoying rock bottom mortgage interest rates. These low rates have saved us thousands of dollars, which we’ve been able to spend elsewhere. One growing concern, however, is that these low rates are pushing our housing markets through the roof. Prices are up, and naysayers have been predicting a housing market crash for years now.

But just how risky is the Toronto housing market?

According to this recent CTV News article, Torontonians may be facing a “comparatively high” risk of real estate prices dropping. These findings are a result of a recent TD Economics report.

What is contributing to the riskier housing market? The balance between supply and demand is an important factor. Lower interest rates have allowed many Canadians to jump onto the real estate bandwagon. But if conditions change and interest rates go up, suddenly, a percentage of homeowners might not be able to meet their mortgage payments. This will push some homeowners to try and sell, leaving the housing market altogether and opting to rent instead.

Toronto has also seen a glut of new construction, mostly with condos, adding to the supply of housing. Too many houses for sale will create a buyer’s market, which could bring down housing prices in a hurry.

Another factor contributing to a riskier Toronto housing market is the housing affordability factor, or lack thereof. When it comes to family income compared to real estate prices, the ratio is getting unaffordable.

Salaries just aren’t going up as quickly as Toronto’s real estate prices. According to the Bank of Canada’s Data and Statistics Office, Toronto real estate prices have gone up a whopping 419% in the last 30 years. Income, however, has gone up much less, at 133%. That means a house in Toronto used to be about 3.41 times the city’s median family income; today, the average Toronto home is about 7.62 times family income. For more information on Toronto’s real estate market from 1985 to today, check out this Financial Post article.

What does this all mean to the average Torontonian? It all depends which predictions you believe. Many experts still don’t foresee a major real estate correction. Experts also don’t think we’ll see high interest rates anytime soon in Canada. It also depends what your needs are; you need to live somewhere.

All Canadians thinking of buying a home should base buying decisions on facts and not just on emotions. Where do you want to live? What do you need? How much house can you afford? It’s not easy to tune out all of the noise, but if you do, you’re likely to make a much better financial decision.

Although hindsight is 20/20, none of us really know what the Toronto housing market will do in the next five, ten or twenty years. Here at the Mortgage Broker Store, we recommend taking the time to meet with a mortgage expert before making any housing decisions. We can help you figure out what you can afford and which financing options are available to you.