Canada and Toronto’s housing markets

2021-03-20

in Canada, Economics, Politics, Psychology

Perhaps the hardest thing about doing a PhD in Toronto is finding decent housing and paying for it with the kind of income the university’s funding package and TA work provides. Since the 2008 financial crisis, governments around the world have undertaken exceptional monetary and fiscal stimulus to try to sustain employment and economic growth. Those ultra-low interest rates, however, have affected asset prices in at least two ways. First, since they cannot even earn the rate of inflation from savings accounts, people have been prompted to invest in all manner of speculative assets, from frothy tech stocks to bitcoin to the housing bubbles inflating around the world. At the same time, low interest rates have facilitated massive borrowing for house purchases, also helping to drive up the level of house prices.

Those dynamics have several unwanted current and future impacts. For one thing, I worry that the sense of affluence it fosters among house owners is contributing to an erosion of empathy. It is also worsening the intergenerational inequalities between people who bought houses decades ago and have experienced a huge jump in wealth as a result and the younger people who in past generations would have been entering the housing market now. When interest rates do finally need to rise (once inflation rises above target levels) many home owners risk being in the unfortunate position that the 2008 crisis caused for so many: being ‘underwater’ with a mortgage now larger than the market price of their home.

I think it would be prudent for governments to pay more attention to asset price levels alongside the inflation and employment rates when setting policy. Their efforts to juice their way out of the last crisis seem to be setting up the next one. It would also be desirable for countries to start requiring comprehensive disclosure of wealth as a prelude to wealth taxation.

{ 12 comments… read them below or add one }

. March 20, 2021 at 4:03 pm

The COVID-19 pandemic has had a major impact on Toronto’s rental market since it first arrived last March — resulting in rent prices not seen in several years — and the latest data shows this month is no exception.

A new report from Padmapper indicates that the median one-bedroom rent in Toronto now sits at just $1,750, continuing the downhill trend that has shaken up the city’s rental market following years of uncontrollable exponential growth.

The last time Toronto saw rental prices this low was in February of 2017, according to the report, when it was at $1,700.

https://www.blogto.com/real-estate-toronto/2021/03/rent-prices-one-bedroom-unit-toronto-four-year-low/

. March 20, 2021 at 4:03 pm

Toronto rents were supposed to drop as people fled the city during COVID-19. The data tells a much different story | The Star

https://www.thestar.com/news/gta/2021/03/20/toronto-rents-were-supposed-to-drop-as-people-fled-the-city-during-covid-19-the-data-tells-a-much-different-story.html

. March 20, 2021 at 8:46 pm

Canada’s Housing Bubble Is Getting Way Worse, And Young People Are Screwed

Experts warn that overall wealth inequality is only going to worsen without real interventions to cool housing prices.

. March 21, 2021 at 9:42 pm
. March 22, 2021 at 12:10 pm

Certain landlord applications to increase rent rose following Ontario’s rent freeze legislation

https://www.cbc.ca/news/canada/toronto/above-guideline-rent-increase-applications-rent-freeze-1.5956415

. March 23, 2021 at 2:11 pm

New Zealand moves to rein in runaway housing market with billion dollar plan

Jacinda Ardern announces more support for first homebuyers and measures to dampen property speculation but admits its no ‘silver bullet’

Measures have also been introduced to dampen speculation, after property investment reached record-highs due to low interest rates and New Zealand’s speedy economic recovery from the pandemic last year. In 2020 15,000 people who already owned five or more properties, bought houses.

The finance minister, Grant Robertson, announced an extension to the “bright-line test” – the holding time of investment properties to get tax offsets – from five to 10 years to curb the flipping of residential homes by speculators. New-build homes would be exempt to encourage more construction.

The government has also removed the ability for property investors to offset their interest expenses against their rental income when calculating tax. More loopholes that favoured investors would be closed, with the Reserve Bank due to report back on possible measures in May.

“Housing bubbles are unstable by their very nature, and we cannot afford to put the current economic recovery at risk by allowing house prices to spiral out of control,” said Robertson.

. March 26, 2021 at 9:18 pm

First, let’s start with down payments in Gangster’s paradise — Greater Vancouver. At February’s prices, the GVA would require 307 months of savings (31 years) to save the minimum. If you plan to flee to Fraser Valley, you’re looking at 128 months of savings (11 years). For those not from Vancouver, Fraser Valley is the adjacent real estate board to the GVA. It’s basically a suburb of a suburb.

Greater Toronto real estate seems affordable in contrast, but really isn’t. The typical down payment requires 135 months of saving (11 years) for the minimum. Fleeing to Hamilton cuts it down to 105 months of savings (9 years) for the minimum. You’re going to have to stop crying, because we’ve got a lot of numbers to go through.

https://betterdwelling.com/canadian-property-bubble-nears-systemic-failure-and-not-even-a-big-crash-can-fix-it/amp/

. March 26, 2021 at 9:21 pm

In Vancouver, you currently need to earn at least $147,600 to make the payments on a typical home in February 2020. Over in Fraser Valley, you can get away with $143,700 per year. That’s 44% and 40% higher than the current median household income, respectively.

Greater Toronto real estate also requires much bigger salaries to carry the mortgages. The payments on a typical GTA home needs a minimum salary of $148,570. In Hamilton, it’s estimated at $128,100 at minimum. The minimum income is 45% and 25% higher than the current estimated household income, respectively.

. March 27, 2021 at 12:25 pm

The Supreme Court gives Conservatives a chance to move past the carbon tax | CBC News

https://www.cbc.ca/news/politics/carbon-tax-pricing-climate-supreme-court-otoole-kenney-1.5964328

. March 30, 2021 at 7:44 am

Toronto rent prices just dropped again for the 15th month in a row

Year over year, rent prices are down a whopping 16.3 per cent, hitting a new average of $1,986 — and that’s not just for one-bedroom rental units, that’s for all property types of all sizes in all parts of the Greater Toronto Area.

For downtown Toronto specifically, condos and apartments did experience a nearly 20 per cent decline in average rental rates compared to the year previous.

“The spring rental market is now upon us, and that will be a test for the resiliency of the market, as this period typically experiences the strongest demand of the year,” said Bullpen’s president, Ben Myers, of the market at present.

“Are tenants willing to return downtown in anticipation of a re-opening of offices, or wait until it becomes a reality?”

. April 12, 2021 at 8:11 pm

Our house-price forecast expects the global rally to lose steam

A slowdown looms for booming housing markets, but a global bust is unlikely

. April 16, 2021 at 2:29 pm

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