A European bank has recently named Toronto among the frothiest housing markets in the world - even though it can seem alarming, further investigation has proven this statement and its message to be contradicting.
UBS Switzerland AG's annual Real Estate Bubble Index, which tracks housing markets across 25 cities, said that Toronto is facing the highest bubbly risk. As it has been said, Toronto is definitely the most prone to a bubble risk, yet this report does not consider Toronto to be the most expensive of the 25 markets it covers.
This report also touched upon the affordability metrics, suggesting that a service worked - for example - would need to work for seven years before being able to buy a modest-sized condominium. Another metric analyzed was how long it would take to pay off a mortgage. In Toronto, the minimum it could take a normal person is 26 years, and obviously this varies from household to household.
The report mentions rents “have only risen hand in hand with local wages,” suggesting scarce housing is not the reason for rapid rent increases. It does however, confirm that a lack of supply, or scarcity of housing, is responsible for rent and price inflation.
Rents, at least in Canada, were rising fast before COVID-19, but that was put on pause by short-term rent freezes during the pandemic. Since the second quarter, however, rents have risen considerably because of the extremely low vacancy rates.
Despite the housing bubble alarms, the expected increase in urban populations implies that “property prices should rise significantly in the long run.” The report’s main message, hidden under the alarms about bubble risks, is that housing prices and sales will resume their upward trajectory. Hence, those who believe housing prices will continue to fall over the long run may have over-consumed this particular brand of bubble tea. But those who tried to buy their first home during that period might not agree since they, too, struggled with housing affordability, leaving one to wonder if housing markets are ever affordable. “A prolonged stagnation in nominal purchase prices … is not the most likely outcome,” the report concludes.
The report considers markets in Toronto to have been under- or fair-valued from the early 1990s to the great recession between 2007 and 2009.
CREDIT: FINANCIAL POST