In the last few days the Toronto Condo Bubble discussion has once again become a hot topic but here’s the thing – if you google “Toronto Condo Bubble”  you’ll see about 19,500 results.  The top hit goes to a Toronto Life article which I think is actually quite indicative of the typical discussion points.  It mentions rumours of irrational foreign investors, the fact that no one really knows, and that even the Economist totally missed the mark when it predicted doom and gloom in the market at the start of this year (we bit on that one).

This morning on cbc radio it was more of the same.  At least they stated that the viewpoint was completely unscientific and anecdotal.  For those who aren’t interested in listening (sorry it’s a flash media player link) the argument is based loosely on walking by a number of signs/builds and wondering if the residents are there to support the supply.  Another argument to support a bubble relates to whether an investment property can demand enough rent to pay expenses.

The Bank of Canada continues to leave interest rates at a stimulus level of 1% (prime at 3%) but would really like for us to act as if this wasn’t the case.  Like most Canadian’s I have a long mortgage ahead of me – I gambled with variable rates for the first 5 years of my mortgage and decided to double down when I renewed last October.  During this time there have been a few opportunities to pay down some of this debt however there is little incentive to do so.   My home is appreciating faster than the interest being paid to hold the debt.  There are simply better uses for any discretionary money such as a home improvement fund (don’t get me started on the stock market!).  So I become a statistic for holding higher debt than I ‘should’.
My personal opinion is that 10% year over year increases are not sustainable but it doesn’t have to end with a dramatic decrease in average home price.  I truly believe most home owners realize we’re in an unprecedented period of low cost borrowing.  When interest rates increase home owners with tight budgets are going to feel it however I think many will simply respond rationally like in previous decades by looking at how much interest they’re paying and get a bit more serious about paying off that mortgage.


Brian Hawrysh

Managing Director at Spring Realty