April 10, 2017

Toronto Housing "Bubble of Historic Proportions"

According to David Rosenberg, “This (Toronto real estate) is a bubble of historic proportions”.

The average price of a home in the GTA rose more than 33% over the past year, reaching a cool $1.5M for a detached (see two charts below):

 

 

 

The city has a supply problem. Everyone in the 416 area wants a detached house, but there’s no room for more. With land values skyrocketing, the only direction of building is up - until every parking lot, derelict strip mall and 7-11 has been converted into a high-rise condo.

Today a standard Toronto home costs 13 times median income for the average Torontonian. So in addition to a supply problem, we have a local affordability problem. Local incomes have not kept pace. In contrast, Toronto is quite affordable to foreign buyers.

According to Rosenberg:

“…if you are a family in say, Brooklyn Heights looking to buy property in Toronto it would only absorb six years of income; and if you reside in Santa Monica and feel like dipping your toes in the Toronto real estate market, it would only take up four years of your annual median take-home pay. The same (four years) holds true for those wealthy enough to be living in Knightsbridge.

You see, when Toronto home prices are measured against incomes in other places of the world, it is not nearly as onerous (especially in Canadian dollar terms).In other words, many well-heeled foreigners can far better afford what the locals can’t afford here, and housing in recent years has truly become an internationally-traded asset class (though I wouldn’t recommend ripping out the foundation and exporting the structure anywhere).

So it goes without saying that if the name of the game is to tame the flame then have the foreign investor share the blame.”

 

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