Toronto Spring Market Starting Early

Toronto Area House Prices Mid February 2012If the Toronto weather seems eerily springlike in mid February, so too does the Toronto real estate market. After a very strong January, we are seeing a continuation of the trend this month, with prices through February 14 up over 9% as compared with the same time last year. Already the average Greater Toronto Area selling price is higher than at any point last year, and there’s no reason to believe that the Toronto market will cool off any time before the summer.

Most industry analysts believe that our market is due for a slowdown, and there are signs that this is already starting to happen in most other parts of the country. For example, the CMHC, in its most recent report, says that Canadian real estate prices will increase only very slowly over the next two years, and that a bubble may be forming in hot markets like Toronto and Vancouver that could burst when interest rates start moving up (whenever that will be; the Fed is now talking about keeping rates low until 2018!).

We don’t have a bubble in the Toronto market. A bubble is characterized by very significant price increases over a relatively short time frame, such as we saw in the late 1980’s before the bubble burst in 1989. Toronto prices have been increasing consistently for the past 15 years (with the exception of a short pause after the financial crisis in 2008), but we have never seen double digit increases during that time, just a steady 5-10% per year. We do, however, have prices that are starting to test the upper limits of affordability, even with our extremely low interest rates; and interest rates are not likely to go lower. Household incomes are rising, but only at about 2-3% per year, and so it would seem that the rate of increase in Toronto house prices must soon decrease toward that sort of number. The hot market almost certainly be with us until the summer, but it will be interesting to see how much of a bounce we get after the usual summer slowdown. It might be a cooler market in the fall and, if so, this would be good news for almost everyone!