Since the last ten years, the housing market in Toronto has appreciated considerably and will probably continue to do so. In light of this fact, the query plaguing everyone’s mind is whether the prices of homes in Toronto will increase further in the future and if the city is in a housing bubble.
In the article written below, we will analyze the fundamental aspects of the history of price growth for houses in Toronto. A thorough evaluation of the past sales patterns will help deduce how the housing market will be in Toronto shortly.
What is a housing bubble?
It is a surge in the cost of housing because of a drastic increase in demand in the market. In a classic housing bubble pattern, there is a rapid drop in the market value followed by a temporary return to the highest value, after which the bubble bursts.
House Market In Toronto For A Detached Home And A Condo
What is a detached house?
It is a house constructed such that it stands alone and does not share a wall with other adjacent houses. Hence, it is also called a single-family home or a stand-alone house.
What is a condominium?
It is a building consisting of various portions that belong to separate owners. However, surrounding the building are common areas that all the tenets have control over. People construct residential condos in the form of apartment buildings. However, stand-alone condos are also available, resembling detached homes. Still, the garden, corridors, exteriors, and any extra facilities like pools belong to the joint ownership of the community rather than a single person.
In Toronto, though, the detached housing cost started declining when the government introduced the Fair Housing Plan and continued depreciating when the authorities presented and subsequently followed the Mortgage Stress Test.
Incidentally, the price of condos in Toronto did not regress in the same manner. However, over time it became much more far-fetched and costly for people to own a detached house in Toronto than a condo until the government initiated the Fair Housing Plan. After this, there was a reversal of the trend.
Reasons For Rapid Appreciation In Condo Prices In Toronto
The foremost reason for the increase in condo prices is a constant or decreased supply while there is a rapid upshoot in demand. The housing supply is calculated more easily than the demand since it includes the number of newly constructed homes that add to the market pool every year. Estimates claim that there are 30000 Toronto homes for sale each year.
Toronto experiences a wave of immigrants coming in each year. These people migrate primarily from other countries and various Canadian provinces to Toronto. This influx of people causes a surge in demand. As population size increases, the pressure for more housing also rises. In 2018, there was an enormous gain in the population size in Toronto, so people constructed more houses to accommodate these numbers. Approximately 125000 people moved to this area in 2018, so there were more Toronto homes for sale.
Months of Inventory
There is a commonly used metric in the real estate market called Months Of Inventory, which measures the number of houses available in the market pool and the rate at which the houses are selling. This metric is inversely related to the average price of homes. If there is a rise in Months Of Inventory, the cost of homes decreases and vice versa.
When the government enforced the Fair Housing Plan and soon after implementing the Stress Test, the price for a detached home in the Toronto market changed rapidly from 1 month of inventory to 3-4 months of inventory. The number of potential buyers shrunk by half leading to a sharp fall in the price of a detached home.
Meanwhile, the condo property received a positive impact because of the Stress Test during the same timeline. It made it much more difficult for a buyer to qualify for a mortgage payment, especially if he had no current home. This increased the need for a condo creating a boom in the condo market.
Currently, there is an appreciation in the market price of Toronto homes for sale because although the demand is high, the supply of new homes can not keep pace simply because it is too expensive for people to do construction. Toronto has one of the most costly and time-consuming approval processes for constructing a condo. It can easily take 2 to 5 years for a builder to begin construction on land that he has already bought. Additionally, the government has increased the number of developmental charges in the city by 300% in the last 5 years. Hence, homes for sale are usually very pricey.