Is Toronto in a Housing Bubble That's About to Burst?
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- Опубликовано: 9 июн 2024
- Connect with me and my agents at Realosophy Realty to discuss your personal real estate situations here:
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Today, I discuss the perennial question most people have about Toronto's housing market - is it a bubble that's about to burst?
Read my accompanying blog post here
www.movesmartly.com/articles/...
To learn more about the last time I called Toronto's housing market a bubble, check out my reports below.
My 2017 report - Freeholds on Fire: How Investor Demand for Houses is Driving Up Prices in the Greater Toronto Area
www.movesmartly.com/investors...
My February 2021 report - Toronto’s Suburban Housing Bubble
www.movesmartly.com/move-smar...
Connect Further:
X-Twitter: @JohnPasalis
Email: askjohn@movesmartly.com
#torontorealestate
Just a quick follow-up on my video.
In case it was not clear, the video was not making a prediction about the future path of home prices. The underlying point of my video is that if prices fall, they will are unlikely to decline because of a rapid change in market sentiment - which is how most bubbles crash.
Could prices fall because of a recession? Yes
Could prices fall if an increasing number of overleveraged households need to sell? Yes
But these types of changes in the market are usually far more gradual than what we experience when a speculative bubble bursts.
This video is more about understanding the market dynamics and knowing where to look for red flags.
I hope that helps.
interesting perspective, but considering both US and Canadian histories, I believe rapid sentiment changes play a crucial role in housing market dynamics. The 2008 US crisis and Canada’s early 1980s and 1990s recessions weren’t solely due to overleveraged assets; a swift shift in market confidence was also key. Economic downturns and overleveraging might suggest gradual changes, yet both the US and Canadian experiences show that sentiment can quickly reverse, leading to accelerated market corrections. This intertwined relationship between asset bubbles and sentiment suggests a housing recession could indeed occur with rapid sentiment changes, challenging the gradual shift scenario you outlined.
Fundamentals set the direction, while sentiments act as the accelerator or brake, either speeding up or slowing down the movement towards that direction.
I find you mischaracterized the US bubble. It didn't just suddenly pop all at once. Activity had slowed and prices were stagnating or declining on and off for over 2 years. Then a spike in unemployment in 2008 caused defaults and foreclosures to rise significantly, which then caused the financial crisis. But sentiment was slowly shifting and the market didn't just turn from "bubble sentiment" to collapse in a few months the way you imply. It took years. Also, this was following a rise of 4% in the fed rate between 2004 and 2006, which also shows the lag effect of rate increases. We didn't have a crisis until over 2 years after rates peaked (and as they were actually declining). These things don't happen overnight.
@@littlepinner05 This is a fair point, the US bubble did not just pop the way Toronto's bubbles did. Prices were far stickier and slower to adjust.
Toronto house prices declined far more rapidly because most people buy a home before they sell their current home, which effectively makes them distressed sellers if the market sentiment changes very suddenly after they buy and they have trouble getting the price they want.
They can't wait 6+months, they have to sell one way or another in a month or two in order to be able to close on the home they bought.
@@john_pasalis John the way I see it… I don’t think the decline is over . I think we are slowing adjusting down towards fundamentals.
The fact that there is already an excessive amount of demand awaiting its absorption, despite how everyone is frightened and calling the crash, is another reason why it is less likely to occur that way. 2008 saw no one, at least not the broad public, making this forecast, as I'll explain below. The ownership rate was noted to have peaked in 2004 in the other comment. Having previously peaked in the second quarter of 2020, we are currently at the median level. Between 2008 and 2012, it dropped by 3%, and by the second quarter of 2020, it had dropped from 68 to 65.
You're not doing anything wrong; the problem is that you don't have the knowledge needed to succeed in a challenging market. Only highly qualified professionals who had to experience the 2008 financial crisis could hope to earn a high salary in these challenging conditions.
@@LucasBenjamin-hv7sk this is all new to me, where do I find a fiduciary, can you recommend any?
I won't pretend to know everything, though. Her name is Melissa Rose Francks but I won't say anything more. Most likely, you can find her basic information online; you are welcome to do further study.
Thanks a lot for this recommendation. I just looked her website up, and I have sent her an email. I hope she gets back to me soon.
Your argument overlooks crucial considerations about debt sustainability, particularly regarding asset cash flow and its relationship to local income levels.
Asserting that the absence of a debt bubble is solely based on increasing asset values and a healthy asset-to-liability ratio is not fully accurate.
The core value of an asset is in its ability to generate cash flow, which, in the context of real estate, is heavily dependent on local income levels. With rental incomes decreasing and mortgage expenses increasing, there's a clear disconnect between asset performance and the economic reality of local incomes.
This imbalance could precipitate a market correction, revealing underlying debt vulnerabilities. Essentially, debt sustainability is contingent upon an asset's ability to generate cash flow, which must be supported by the local income landscape.
Without sufficient local income to support these cash flows, the risk of a significant housing market correction becomes increasingly likely, challenging the premise that current debt levels are sustainable.
^ This. Current prices are still supported by decades of cheap debt and speculation. You can call it whatever you want (cyclical vs. bubble) but the fact is that prices have deviated far, far away from fundamentals. Given our current faltering economic conditions (per capita GDP declines, lack of investment into a productive economy due to capital being funneled into real estate or invested into other, more productive economies of the world), the likelihood of rates never returning to the near-zero levels of the past, and our high levels of debt both personally and fiscally, we are setting up for a really bad scenario unless drastic changes are made (which I do not foresee any government being able to execute).
Maybe I didn't communicate my point clearly enough. Because your argument is not inconsistent with what I'm saying.
I posted a comment that is pinned to this video that hopefully clarifies the point I was trying to make
Thanks, John
@john_pasalis the whole video was you trying to rationalize prices against most basic fundamentals. Even your anecdotal statements on sentiment do not represent most peoples experiences that I talk to.
What about the mortgage fraud. You didnt mention it. It is a significant number among people in gta.
That's why these guys feed on.. fraud until it'll all collapse.
Mortgage fraud isn’t as huge as you think. If it were so rampant the cards would have come crashing down long ago. Just because you or I may not have money - doesn’t mean other people don’t. You’d be surprised 😮
Are you in the real estate business?
@@andrewsaunders2865 which commenter are you asking?
Mortgage fraud is rampant however due to high rent the crash is getting delayed.
Mortgage fraud is becoming the norm.
I see friends doing it regularly to compete with the money laundering.
They're all in way over their heads.
He is the brokerage, he will never say it is bubble even it is huge bubble.
Every symptom you just listed is happening. This is a housing bubble. Been looking to maybe buy a house and all I hear is you better buy now before you miss out.
I don't understand the argument that there wasn't a rapid increase in housing prices... there obviously was... that's why we're here.
I will never grasp the lengths and depths people go to justify or not to address that canada needs to go to a price correction. To be clear price correction downwards. It is clear that the powers and lobby at be are doing all they can to justify this situation.
People bluntly ignore the issue and everyone that talks about it seems to have a keen interest in keeping prices high.
I think that at this point letting housing crash all the way to where it should will cause a long depression
Are you serious this is not a bubble? 99.99% of the small towns house in GTA over 1.5 million dollars price jump within few years you call it is not a bubble😂 500sq condo over five - six hundred thousand this is not a bubble 😂 what kind of cigarette did you smoke 😂
@@stephenr6194 I no longer bother to try to argue with this people. They simply want the status quo. They rare already hinting that they don't want to sell now due to prices are falling. Meaning they want higher prices in order to sell. So yup we are in a hole of 💩
Why are you basing your general assumptions on asset to debt load? Banks will look at DSCR and their customers ability to repay debt. There is way too much leverage out there along with high COL. It’s a bubble.
This was a poorly formed circular argument. Prices are going down so we aren’t in the bubble. I think people are asking if this is the start of the fall.
Sounds a little bias. I think the market is more exposed than ever. It should only get worse from here considering how much housing contributes to inflation. If the boc changes rates low again and it spurs the speculative buying formula you’re talking about. I wouldn’t be surprised if they raise the rates again.
Irrationally can last a long time. Especially when it's supported by governments.
Have you ever delved into the demographic impact of the baby boomers on potential inventory growth? This generation holds a substantial portion of homes in Canada. I'm curious about their outlook regarding a potential decline in real estate. Are they considering cashing out and downsizing? Anecdotes abound of parents relocating to countries with lower costs of living and more favorable climates.
There was a piece that came out less than a week ago, that argued the opposite. That seniors are more likely than ever to hang on to their homes citing high transaction costs, the hassle of moving and a lack of suitable inventory to buy.
Seniors are not downsizing in big enough numbers yet. In many cases you'll see one or two people living in big detached homes.
Even the oldest boomers are still only in their 70s
Many have leveraged equity to get their kids into the market as well
Your argument is illogical just because prices have stopped going up means we're not in a bubble. Priçes we're increasing like crazy just 2 years ago a bubble that had been blowing up for some time. Just because the bubble stops growing and starts to deflate doesn't make it cease to exist...
Thanks John! When you finish it, I hope you will share your doctoral thesis with this community. Congratulations!!
Thank you!!
Well I enjoyed the gaslighting! I Guess millions of dollar for mom and dads house is reasonable.
U damn near chocked when you said it isn't a bubble,we all know every realtor is trying to pump the market,like milking a dead cow,the gigs up go flip burgers bud
The prices have not gone down, but the sales have crashed. Wake up.
I knew we were in a bubble in 2019. When the market is soooo saturated monetarily. and who could afford to buy a house?? It had nowhere else to go. And putting in an offer was just nuts. I seen the writing on the wall.
Toronto has been in a bloated chug chug chugging housing bubble for over 10 years. You cannot rationalize slightly lower prices and lack of acute speculator/FOMO feeding frenzy when T.O. remains one of the most expensive places to live on the planet, in the midst of mass-emigration to 'cheaper provinces' like Alberta (note I said cheapER, not cheap), when upwards of 30% of mortgages held by 4 of the Big6 banks are negatively amortizing to avoid mass-foreclosures, when MICs are encouraged and mortgage-fraud is rampant, when we are still in the midst of unprecedented immigration levels (even with tens of thousands leaving Canada because of unaffordability), and when homeless populations and encampments are exploding. Canada does NOT have a "housing shortage" - Canada has an AFFORDABLE housing shortage - the OECD in 2021 estimated Canada has 1.3 million VACANT properties. No amount of new builds will make any difference if they're not AFFORDABLE.
Yes it is
Real Estate only goes up to the moon forever! lets goooo
The "debt" is Canadian dollars, which is rapidly being devalued
We have gone from 6th to 15th richest country in the world... and falling fast... We are now behind countries like Ireland, the Netherlands, Austria, Sweden, Iceland, Australia, Germany, Belgium, Finland...
DId you see Andrew Coyne's piece today in the Globe>>
Here is the last paragraph of his article:
Since around 2000, while business investment in residential structures has roughly doubled as a percentage of GDP, investment in machinery and equipment has roughly halved. Could this go some way to explain why our relative productivity growth fell off so sharply after then? Have we been so busy capitalizing on rising housing prices that we neglected to invest in the sorts of things that make it possible to afford a house?
It is high time the government de-incentivizes speculation/investment in residential real estate...
I use only one ind. top shorted stocks on the TSX atm lead by RBC and all the other big 4 banks are in the top 10. Since TO is Canada for most practical purposes mess is gonna be long drawn and choppy with interest rates and inflation playing the most critical role as wages are always in deflation 😀
It's just semantics. The bottom line is prices are still too high and there's still too high as a result of the bubble that existed in 2021 2022 so they could fall drastically and to most they would see that as the bubble bursting. Also I would argue that FOMO is still out there. People are buying thinking the immigration is going to stop them from buying a home so they have to get in now.
You are taking one definition of a housing bubble only and you are taking it literally.
One could say that we were in a housing bubble in 2021-2022, AND that it was put on pause by politicians and bankers who are trying to buy time hoping that the mortgage rates will come down. If they don't, the bubble will eventually continue unravelling.
Bubbles are not instantaneous events. They may take time, they may be put on pause (by various interventions) and then continue unravelling (when those interventions come up short of the desired outcome).
Toronto....in a housing bubble since the 1990s, but still has yet to burst.
Really !
Maybe the prices have not gone down, but the sales have crashed,
Good points! the future are city-states...- like the Middle Ages-, more accurately Transit Oriented Mega City States; and Toronto is rushing to become one. The Toronto train may slow down, but it's not stopping anytime soon.
As always, excellent analysis 🙏🏻🫡
Incomes are the major component. RE is gonna reach the moon according to realtors but who is going to afford it?. The incomes and RE prices and mortgage payments don’t math up at all.
Its been a Bubble since 2012
I thought he was objective, well I was wrong. Another biased scammer who worries about this bonus
we see exaggeration in 2019-2021... we are pass it and in the normalization process
lol........ no.
You should be ashamed of yourself for getting on here and trying to say that. We're not in the bubble and the irrational. Exuberance has played no part in the real estate crisis getting out of control
Its not just a bubble; its a huge balloon about to explode. The Hindenburg comes to mind.
this is hilarious.
My general rule of thumb: Never take advice from a salesperson. Their motive is to close on a sale either car or a house
haha ! its already burst buddy
TLDR It's not a bubble, but its definitely a bubble.
I don't need to watch pumping Pasalis. Answer is YES!!
Remember, economics is NOT a science. It's an edifice of inputs with an economist bias that models an outcome. To say it's not a perfect science is wrong-it's not a science, period! Physics is a science - gravity- the same result every time. Listening to an economist is a waste of time. Focus on interest rates and buyer and seller behavior - end of story.
you are still pumping housing price
Good luck defending the thesis next week. 🫰🫰
Thank you!