An explanation of 13 years of Toronto real estate and how we got to this point (and a bit of what’s maybe around the corner in the short-to-medium term)

I’ll start off by saying I’m not a real estate agent, nor in housing finance. But I keep a close watch out of personal interest and because my profession requires me to know a bit of what’s happening (plus I find it fascinating). I’ve been following it closely for the last 15 yrs.Another thing I’ll say upfront regarding the foreign investment numbers I provided, we’ve seen numbers all over the place, and often contradictory in the same week (I recall a few years back one institutional report came out on a Monday saying it was under 4% and another bear-on-real estate article came out on Wednesday saying it was over 18%! along with others stating everything in between). And I watched as the numbers slowly trended downwards as Provincial govt measures took hold and as foreign currency control measures took affect (most notably a crackdown on $50,000 USD transfers out of China in 2018 and how that started to play into the new social credit system measures in 2020). So I’ve averaged some reporting numbers since the truth likely laid somewhere in the middle).In the end, I’m neither bullish nor bearish in the medium to long term. It’s been all context driven to date, and will continue to be in the future (that’s all I can say on that). In 2019 if someone told me the apocalyptic plague or a catastrophic meteor would’ve hit, I wouldn’t have believed it. And I wouldn’t have thought prices would’ve reacted as they had. Well, we got the plague. Will it be meteor-2022?Anyway, this is a timeline which explains a lot of the market from the 2008 financial crisis to present, along with some possible scenarios into 2025 to 2027 based on the history of it all.2008 – 2012 – Following 2008 a lot of people were hesitant to buy property. We fared much better than the US and much of Europe through the financial crisis, but there was still a lot of uncertainty. But by 2013 the market started to get back to 2007 levels.By 2013 Toronto felt their jobs were finally safe again following the financial crisis and Canada’s economy was doing well again.2014, people who put off housing purchases the prior 5 years (during the financial crisis) started to jump in. Toronto was seeing big population gains as well (domestic + international). Prices went from a relative calm to a climb.2015, People saw larger gains in real estate than other investment tools. This prompted more people to get in on it (be it reno-flippers, those wanting long-term primary residence, and domestic & foreign investors). Construction took off following a sharp increase in builder confidence for the first time in 7 years. By Dec 2015 detached houses were going up by $8000/month (versus $3000/month earlier in 2015).2016, by February it seemed like everyone who was pondering getting a property for themselves (first time, upsizing or investing) started to feel FOMO. By May detached houses were going up $12,000-$14,000/month. The momentum kept building in a feedback loop throughout the rest of 2016.By the end of 2016 / beginning of 2017 detached homes were going up by $20,000/month. It was insane. Politicians were feeling the heat as people were getting really angry and pointing their fingers at both politicians and foreigners (even though other major factors and reasons were also at play which didn’t get nearly as much attention as it should have, like those mentioned above). There was word that anywhere between 10-15% were foreign buyers (but final records showed it was actually much less, I think around 5-9% in certain market segments once records were checked, but it fueled greater FOMO in the interim before it finally fell to around 3% after the foreigner tax was imposed, and then down to 1.5% in the year leading up to COVID. I wouldn’t be surprised if foreign investment is now almost 0% since COVID and since AirBnB was banned). By Feb / March 2017 (just weeks before the brakes were applied by the Wynne gov’t) the population’s thoughts towards the market seemed to fall between two extremes…(1) that this couldn’t continue and it would end bad if the govt didn’t intervene(2) at increases of $25,000/month, better get in and buy now or be locked out foreverProbably half of the public looking for homes were somewhere between these two thoughts and were prepared to buy out of FOMO if prices kept going up, but they were equally willing to not buy and to just wait-and-see if they thought the province and feds were going to hit the brakes on housing.April 2017, the govt hit the brakes with the foreign buyers tax. The FOMO bubble popped. The prospective home buyers mentioned in the previous paragraph now wanted to wait-and-see what was going to happen with prices before buying. It stopped a lot buyers from buying which stopped the price increases. At the same time sellers took their homes off the market to see what was going to happen (ie they didn’t want to risk selling at a lower price if they didn’t get what they wanted). That sudden collapse in supply stopped prices from dropping. It was a standoff… buyers weren’t buying and sellers weren’t selling. Prices stagnated and stayed stable.June 2017 – the feds introduced the stress test. That reinforced buyers not being confident yet in buying, and sellers not wanting to sell at risk of a lower price. The home price stand-off continued, with prices remaining in suspended animation (there was a drop, maybe about 8%-15% depending on the area of Toronto, but it was short lived over the rest of the year).Fall 2017: With the damage from the financial crises over, quantitative easing by the feds was over. Interest rates started to climb. Housing prices stayed stable as all sides held their wait-and-see position.2018 – rates continued to climb. In May 2017 they were around 2.1%. By May 2018 they were 3.4%. But by this point a whole year had gone by since the foreign buyers tax, and 11 months since the stress test. People (sellers and buyers) saw that Armageddon never did happen as many feared. People felt they dodged a bullet and jumped back into the market despite higher rates. Housing prices slowly started to climb again.2019 – housing prices started a new, moderate and steady climb. In early 2019 the increases soon made up for the price decreases just 12 to 18 months earlier in 2017.Feb-May 2020 – Covid stopped and reversed the climbs. This time Armageddon did actually happen (the Plague) and nobody wanted to buy if the market was going to crash. BUT homeowners were trapped. In a normal crises if buyers all stopped buying, it would entice homeowners (at least in theory) to sell as fast as they could to cash in as quickly as possible before prices went too low which would cause them to lose their shirts. In theory that would cause a real-estate market crash.But (and it’s a major BUT) COVID prevented homeowners from selling all at the same time, in a large selling movement. Stay-at-home orders and lockdowns shut down the real-estate industry (for both buyers and sellers) and homeowners were not given the opportunity to sell off. A massive drop in prices and a collapse did not occur. (There was a moderate drop in prices from March to May with a brief major dip in March 2020, but that quickly rebounded).June 2020: As we went into summer people realized THREE things:A crash was averted because COVID prevented a sell off (ie: you can’t sell your home if COVID lock-downs have locked all your potential buyers in their homes, making it so you don’t even list your home), andPeople were working from home and knew WFH would be a long-term reality. WFH increased demand exponentially, andthe government sharply started up quantitative easing again to allow the government to safely take on massive debt loads to shoulder the economy through COVID. This plunged interest rates which was like pouring oil on point #2. Whereas housing was still extremely expensive (still at 2018 levels as we entered summer 2020), a LOT of people suddenly found they could afford it with new record low interest rates.Jul 2020 to now – the market kept going up and up and up for the same reasons mentioned above. In addition, areas in the Golden Horseshoe (beyond the GTA) really took off more than any time before as (1) WFH enabled it and (2) as locals in those areas got FOMO for the first time. Since November, it spread to all of Southern Ontario, and now you can be in a small village in the middle of nowhere and houses are at least $350,000+ in a village of 2000 people half way between Windsor and Leamington (which has never happened before). It’s crazy. Even central Nova Scotia (a long-time write-off by the rest of Canada) has become the new El Dorado for real-estate.How long can it continue? Well, it’s anyone’s guess. The BOC said they’re not planning to ease off of quantitative easing until 2023 because they can’t (they need to keep debt servicing costs lower than GDP growth to be able to manage and tackle the debt – lest it collapse gov’t services – which should keep retail mortgage borrowing rates low). And because mortgages and buyers are are still “stress tested”, this leads one to assume that even if rates were to start to rise in 2023, that people can financially shoulder a 2% increase (which could take us as far along as 2025 to 2027).Probably what will determine how much or how fast prices will continue to increase will be if the current pool of buyers maxes out because prices pass a certain threshold. The question then will be if prices will go into a holding pattern at that point – which is a strong possibility (However, I can’t see them collapsing, because if they go down there will be hoards of others who will want to get in to take advantage of ultra low interest rates as a result of quantitative easing).After 2025 (and into 2027), if rates go up beyond what people were stress-tested for, who knows where things could go (There are just too many factors to make predictions beyond 2026 / 2027 – ie: • possible increases in immigration, • possible decreases in immigration as the US under Biden will be copying our immigration point system to compete better which leaves immigrants having to chose between them and us, • rates possibly staying the same to help the gov’t try to get rid of $1T in new debt, • rates possibly going up further, • increased supply, • decreased supply, • another recession, • complete economic boom times … Just nobody can know at this point). Plus so many recent buyers will already have a cushion of 5-10 years equity built up in their homes.So there’s our 13 year history of Toronto housing since 14 Sep 2008 (from the day Lehman Bros collapsed and the financial crises started, until today)And if you’re curious what all this quantitative easing is about, here’s a comment I wrote to explain it elsewhere, with a bit of a deeper explanation I wrote here, and how it ties into all of this and our interest rates (Which at least provides somewhat of a constant into the medium term which can allow us to make some predications a few years out).(Edited a couple of number typos) via /r/PersonalFinanceCanada https://ift.tt/3cDlAaG