I was always a fan of Maclean’s yearly set of charts, traditionally compiled by Jason Kirby. This year Jason Markusoff presented 5 housing charts titled “Five charts that will define Canadian real estate and housing in 2022” (link) which are amazing so check those out.
I’d love to contribute to this movement and since I’m closely focused on Toronto Metro real estate market I’ll present 5 notable charts related to it.
Toronto Metro real estate market is moving away from the fundamentals
Household incomes and lending conditions are two core fundamentals that have been shaping real estate prices throughout history. In recent years Toronto Metro real estate prices significantly diverged from those two fundamentals which previously only happened once within the series - during the 1989 Toronto real estate bubble.
How fast it’s happening?
The pace at which the market is moving away from the fundamentals during any given year was unprecedented in 2021. It set an absolute record within the whole series.
Here is how it happened. A 5-year fixed mortgage rate is higher in December 2021 compared to last year, so combined impact of the mortgage rates and household incomes is suggesting that Toronto Metro real estate prices should’ve declined by 4% in 2021. Instead, they increased by 33% leading to a record 37% gap between fundamentals and year-over-year price growth.
Why prices are growing?
In 2021 we saw both record sales and also a decline of the inventory in Toronto Metro which both contributed to the surging prices. While a record spike in sales was temporary, a decline of the available inventory was a notable trend through the whole of 2021.
Toronto Metro ended 2021 with the lowest inventory since the data exists and it becomes even more alarmingly low when presented as a share of the population.
The most expensive market in Canada
Everyone knows that Vancouver Metro is the most expensive real estate market in Canada. It’s been like this for ages, but the situation is changing rapidly. Toronto Metro real estate prices have been catching up since 2018 making a giant leap in 2021, and ending the year only 2% below Vancouver Metro.
Toronto Metro is on a verge of becoming the most expensive real estate market in Canada. In the past(since the data exists) it happened only during the 1989 Toronto bubble.
Bubble? Depends on whom you ask
While Toronto Metro real estate market may look like a bubble for homebuyers it doesn’t seem to be the case for condo investors. Thanks to the ultra-low rates, cash flow calculated for interest payments is within the historical norm. Principal payment is excluded as a form of savings. You may disagree with that math but that’s how investors see the market and based on that math there is a case for rational investment in Toronto Metro real estate even today.