Five reasons the greater Toronto real estate market is different

It has become trendy these days to write headlines which promise the end is nigh! It seems daily we read new articles from reputable banks, government bodies and media outlets declaring Toronto real estate is in a bubble. Recently BMO jumped on the bubble bandwagon.

Toronto’s favorite real estate bear Garth Turner was happy to see BMO’s Doug Porter had “thrown in the towel”

Garth says “The brave are selling. The weak are buying. Govern yourself accordingly.”

The point is that bubbles burst, and when they do, there is often a rapid, sharp decline in value of the underlying commodity.

Many respected economists and media publications have been bearish on real estate for the past few years. The venerable Economist magazine declared our market over valued not so long ago.

Back in 2013 and 2014 some experts recommended you sell your property, go rent for a while, and come back when prices are lower as “they surely must go”. How did that strategy work out for those who hang on their every word?

For what it’s worth I have been consistently bullish over this time frame. Though I cannot deny the market we have seen the past month or so is nuts. Simply a case of lots of demand and no inventory.

My real estate agent friends tell me the number of listings hitting the market daily is finally on the rise, and our spring real estate market may be a week or two early this year.

Last year was incredibly strong, not just in the Toronto 416 area code, but in outlying cities in the 905 code – whether north, east or west of the city core.

It’s a fun time to be a listing agent these days in the Greater Toronto Area, and it’s not much fun being a buyer.

We have all recently read silly stories about ridiculous selling prices for non descript properties all over the GTA. Mainly because there has been very little inventory out there, but the buyers have not gone away.

And no, I do not think this is sustainable nor is it healthy. But that does not mean the market is going to crash. Isn’t it allowed to just slow down and normalize? This is not a bubble folks.

In 2013 I published an article called Don’t Follow the Herd. The gist of it was a well-known and deservedly respected financial writer was counselling first time buyers to rent, not buy and wait on the side lines.

I wrote then “I learned an expression in the financial sector many years ago – “Don’t stand in front of an onrushing locomotive”. In my experience, what matters most is the trend line.

So, if real estate values are going up rapidly, don’t try to guess the top. And when real estate values are plummeting, don’t try to guess the bottom. The trend never stops on a dime.”

In July 2014 I published a piece called Rising Real Estate Values Creating Lots of Problems. At the end of the article I said“But I still refuse to predict the party is over“

In 2015 I was interviewed on video by Mortgage Broker News about the market and it’s direction. I was exceedingly bullish. Unfortunately the links are still there but the videos can no longer be played. It’s either that one or this one, I don’t exactly recall the title.

Maybe I got lucky, but I think I deserve an audience at least

Smart people like to tell us how something is going to behave, based on historical experiences which seem to mirror the present. We see this as experts follow stock prices, gold prices, interest rates, real estate values…. you name it.

When I started out as a stockbroker in the mid-eighties, the Dow Jones Industrial Average (DJIA) was still under 1,000. Yes, only 1,000. And while there have been a few bumps along the road (nothing goes up in a straight line) the DJIA recently cracked 20,000! A buy and hold strategy has worked very well.

Buying into the DJIA at any time over the past 30 years has been safe. So has buying Toronto real estate.

Here are my five reasons the Greater Toronto real estate market is different

  1. You cannot use the past to predict the future. An old university prof used to say when you are building a predictive model, if you put garbage into the analysis, you get garbage out.
  2. Never be a market timer. Nobody can be that smart consistently. They can be lucky and right now and then, but there really is no point if you believe in the fundamentals of your purchase.
  3. Condos are here to stay. They are the new starter home for many first- time buyers. And they will be super appealing to empty nesters who wish to cash in their large equity gains and down size their lifestyle and finance it to boot.In past economic cycles, condos were the fad product that was the last to rise in a strong market, and everyone ”knew” the market was about to slow down. Well it’s different now. Starting around 2013 many mortgage lenders put condos on their watch list and tightened their lending against condos. Turned out they have been wrong too.
  4. The divorce economy has been and will continue to be a huge driver for demand for real estate. Let’s face it, marriage isn’t what it used to be, and more than half of them end up in divorce or permanent separation. This creates a very large demand for more homes for more households.
  5. And then there is our old friend, net migration into the Greater Toronto Area. 60,000 or more newcomers competing with the divorcees and first time buyers and move-uppers for a place to live. Toronto is a world class city and the envy of many countries all over the world. We are peaceful, we are safe, we are a major financial hub, we are prosperous and we are north of the 49th Parallel! We are now in the conversation with great cities like Paris, London, Tokyo, New York, Seoul, and Melbourne.

I am neither a trained economist nor a subject matter expert. Not that being one guarantees anything.

But I do have a wealth of experience and have lived through many market and economic cycles. And I deal with this stuff every day in my profession as a mortgage broker. The long term outlook for real estate values in the greater Toronto Area is bullish and should always be as far as the eye can see.

Related Article: First time buyers can still get a mortgage in Toronto with no down payment