The GTA real estate market has been in the center of attention for quite some time with Toronto in the limelight. There were many turbulent events and speculations in the past three months that caused a whirlwind in the market. Since the first quarter of 2017 saw a dramatic increase in housing prices (a 30% increase) compared to last year, the Toronto government became worried about a bubble effect, so it took matters into their own hands to deal with the potential bubble threat.
Why a bubble effect was hovering over the GTA real estate can be explained in a simple manner. There are several reasons that led to an overheated market:
- The real estate business has become one of the fastest growing markets in Toronto, and in Ontario in general, we have to say, it became a significant factor in the overall economy, given that real estate businesses in Ontario accounted for 29% of the economic growth last year. This means that Ontario, including the GTA, became heavily dependent on the housing market. The bigger the sector grew, the pricier it became. Some would even say that real estate surpassed manufacturing in the past period, which means that real estate carries a heavy burden on its shoulders as it became one of the major reasons for a flourishing economy in the GTA.
- Another reason that led to the “bubble-trouble” was an influx of immigrants. We are not only talking about foreigners here, but mostly about Canadians who moved from other cities to the hotspot city of Toronto.
- Also, a lot has been speculated about slowed down housing projects and the lack of land and space to expand construction projects. Such a lack of supply also contributed to a pricier market. Still, many realtors disagree on this, stating that there is enough space for new construction projects.
- The last factor that possibly had an impact on the accelerated real estate market was the affordable interest rate that has been kept at a low for around a decade until it recently rose again.
“Cooling” Measures and Speculations
Based on the above-mentioned reasons and a potential bubble explosion, the first thing to do was to think of how to cool off the market. A la Vancouver-style, the Toronto Government decided to introduce a foreign 15% tax included in the 16 measures plan that was (and still is) supposed to slow down the real estate market. Among the 16 measures, a stricter rent control was also emphasized in order to keep the market further slow (e.g. introduction of a vacant home tax).
This represented a sign for buyers to take a break and wait for subsequent developments. Already in May, the market started to cool off, and house sales in the GTA fell by over 37% in comparison to last June. Nevertheless, many realtors claimed that buyers would be back as soon as they process the changes. But, before that happened, the long speculated interest rate increase was already announced, which grew by 0.25%, and stands now at 0.75%.
Still, based on the Vancouver example, many experts believe that once everyone gets used to the new market conditions, prices will go up again. Despite slower demand in the past several months, the federal housing agency believes, it is just temporary and that it is a matter of time when the listed houses will sell like crazy again. Others, on the other hand, believe that it will take more time for the Toronto market to heat up again, due to speculations that further changes will be introduced, as for example, stress tests for uninsured mortgages.