{"id":7134,"date":"2017-10-10T10:10:20","date_gmt":"2017-10-10T17:10:20","guid":{"rendered":"http:\/\/www.roryc.ca\/blog\/?p=7134"},"modified":"2017-10-03T11:51:17","modified_gmt":"2017-10-03T18:51:17","slug":"why-toronto-vancouver-sit-in-the-housing-bubble-risk-zone","status":"publish","type":"post","link":"https:\/\/www.roryc.ca\/blog\/2017\/10\/why-toronto-vancouver-sit-in-the-housing-bubble-risk-zone\/","title":{"rendered":"Why Toronto &#038; Vancouver Sit in the Housing Bubble-Risk Zone"},"content":{"rendered":"<p style=\"text-align: justify;\">When it comes to housing markets in 20 global financial centres, no market is more at risk of a housing bubble than Toronto\u2019s. And Vancouver\u2019s market sits in the danger zone as well.<\/p>\n<p style=\"text-align: justify;\">Over the last five years, real housing prices in Toronto rose 50%, making it the city with the highest risk of entering bubble territory in UBS\u2019 Global Real Estate Bubble Index report, published last week.<\/p>\n<p style=\"text-align: justify;\">The Swiss bank designed the annual report to track the risk of housing bubbles in 20 global financial centres.<\/p>\n<p style=\"text-align: justify;\">UBS defines a housing bubble as \u201ca substantial and sustained mispricing of an asset, the existence of which cannot be proved unless it bursts.\u201d<\/p>\n<p style=\"text-align: justify;\">It\u2019s important to note that the report does not forecast whether a price correction in the cities will occur or when a correction may happen.<\/p>\n<p style=\"text-align: justify;\">When analyzing home price data up until the second quarter of 2017, Toronto has the highest possibility of entering bubble territory with an index reading of 2.12. Stockholm came in second place with an index reading of 2.01. An index measure above 1.5 indicates bubble risk.<\/p>\n<p style=\"text-align: justify;\">\u201cI\u2019m pretty much in agreement that between January and April of this year, Toronto was in a housing bubble,\u201d says Ben Myers, Senior Vice President of Market research and Analytics at Fortress Real Developments, a Toronto-based developer.<\/p>\n<p style=\"text-align: justify;\">Myers says there are two reasons why Toronto landed the top spot: rapid price increases and speculative purchases.<\/p>\n<p style=\"text-align: justify;\">According to UBS, Toronto price growth reached 20% year-over-year in the last quarter of 2016.<\/p>\n<p style=\"text-align: justify;\">In addition to tremendous price gains, Myers adds that speculative buying was a major concern in the market last year.<\/p>\n<p style=\"text-align: justify;\">\u201cJust looking at some of the MLS data and seeing people pay $300,000, $400,000 and in some instances as much as $800,000 over the asking price, you can see that there\u2019s some type of frenzy going on in the marketplace,\u201d says Myers.<\/p>\n<p style=\"text-align: justify;\">After the Ontario government introduced the Fair Housing Plan in April for the Greater Golden Horseshoe region, home price gains have eased in Toronto. Importantly, with this slowdown, Myers says the city is no longer at risk of a bubble as \u201cthe froth is out of the market.\u201d<\/p>\n<p style=\"text-align: justify;\">Vancouver took the fourth spot on UBS\u2019s index list, sitting in bubble territory with an index reading of 1.80. According to UBS, price growth peaked in the middle of last year, when real prices soared 25% year-over-year in the city.<\/p>\n<p style=\"text-align: justify;\">However, after the BC government implemented a 15 per cent foreign-buyer tax for Greater Vancouver in August 2016, growth slowed in the beginning of 2017.<\/p>\n<p style=\"text-align: justify;\">The levy immediately reduced the amount of foreign buyers entering the market and caused buyers to wait on the sidelines, says Myers.<\/p>\n<p style=\"text-align: justify;\">Although price growth eased to 7% in Q2 2017, the city still remained at risk of entering bubble territory, says UBS.<\/p>\n<p style=\"text-align: justify;\">To supplement UBS\u2019 index, the report also includes a city benchmark using current price-to-income and price-to-rent ratios.<\/p>\n<p style=\"text-align: justify;\">In Toronto and Vancouver, it would take a skilled service worker roughly seven and nine years, respectively, to be able to buy a 650 square foot apartment near the city centre.<\/p>\n<p style=\"text-align: justify;\">When analyzing the price-to-rent ratio, the same sized apartment would have to be rented for roughly 34 and 27 years to pay for it in Vancouver and Toronto, respectively.<\/p>\n<p style=\"text-align: justify;\">Although it paints a picture of poor affordability in the two cities, Myers notes there are some limitations with this data. Myers suggests that the data should only compare the income of homeowners versus the purchase price of homes in the marketplace instead of using the income of all households.<\/p>\n<p style=\"text-align: justify;\">He also adds that according to his own survey conducted in his Market Manuscript, about 95% of housing analysts say that studies using price-to-rent and price-to-income ratios do not predict what\u2019s going to happen in the short-term housing market.<\/p>\n<p style=\"text-align: justify;\">\u201cIt might show that a housing market is frothy but it\u2019s not going to tell you anything about the direction of pricing moving forward,\u201d says Myers.<\/p>\n<p><a href=\"http:\/\/news.buzzbuzzhome.com\/2017\/10\/why-toronto-vancouver-sit-housing-bubble-risk.html\" target=\"_blank\" rel=\"noopener\">Why Toronto &amp; Vancouver Sit in the Housing Bubble-Risk Zone<\/a> by Kerrisa Wilson | Buzz Buzz Home<\/p>\n","protected":false},"excerpt":{"rendered":"<p>When it comes to housing markets in 20 global financial centres, no market is more at risk of a housing bubble than Toronto\u2019s. And Vancouver\u2019s market sits in the danger &hellip; [<a href=\"https:\/\/www.roryc.ca\/blog\/2017\/10\/why-toronto-vancouver-sit-in-the-housing-bubble-risk-zone\/\">read more<\/a>]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[8],"tags":[],"class_list":["post-7134","post","type-post","status-publish","format-standard","hentry","category-market-updates"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.7 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Why Toronto &amp; Vancouver Sit in the Housing Bubble-Risk Zone &#8226; Rory C Real Estate | Oakwyn Realty<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.roryc.ca\/blog\/2017\/10\/why-toronto-vancouver-sit-in-the-housing-bubble-risk-zone\/\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:title\" content=\"Why Toronto &amp; Vancouver Sit in the Housing Bubble-Risk Zone &#8226; Rory C Real Estate | Oakwyn Realty\" \/>\n<meta name=\"twitter:description\" content=\"When it comes to housing markets in 20 global financial centres, no market is more at risk of a housing bubble than Toronto\u2019s. 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