Toronto housing – what’s the worst that could happen?
Like the recent experience in the US, the Canadian housing market could take a long time to bottom out once a decline begins.
The chart below shows average house prices in Toronto dating back to 1953. (Prices are adjusted for inflation and are shown in 2016 dollars.) The green line represents house prices in Toronto, while the pink line represents the linear trend over time.
As shown in the chart, price deviations above the trend have historically been followed by corrections lasting anywhere from 5 to 11 years. Keep in mind that this is in real dollars (after accounting for inflation). In nominal terms, prices may not have fallen quite as much. Still, it’s real dollars (and therefore real wealth) that matters most, because it accounts for the purchasing power of your money.
Takeaways: 1) Home prices tend to correct when they rise far above their long term trend, and 2) a correction could last for several years.
Chart source: www.therealestatetoronto.com