Toronto's Real Estate Bubble

03 October 2019

Do you know what a real estate bubble is? Can you predict one? Several so called experts have written books on the subject. All predicting the coming crash. They use price-to-income and price-to-rent ratios, tracking over 25 years to show how smart they are. The truth is that real estate bubbles, that is prices rising faster than inflation, occur when the demand for housing (that's buyers) is greater than the supply (sellers with property for sale).

The only way that a bubble breaks, or a price crash occurs, is when there are more sellers than buyers. I don't know why it has to be more complicated than this. In Toronto, buyers through immigration keep coming into the market. We need almost 40,000 new housing units each year just to keep pace. Supply, what is delivered to the market has never reached 40,000 units once in the last 10 years. So we are never going to get to a crash until this changes.

Yes, Governments can introduce new rules to slow the market down and cause it to pause for a year or two, think 2017/2018. But long term, prices will continue to trend up until demand and supply come into balance.

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