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You’ve likely read plenty of headlines proclaiming that doom and gloom is on its way for Canada’s white-hot real estate market. Many pessimistic authors are warning us of the impending bubble burst that is soon to come. But is it really going to happen?

Let’s be honest: the market is hot. Bidding wars are outrageous and home prices have been breaking records for months, particularly here in the GTA. It’s not unfair to say such growth is unsustainable. But is it a bubble? A real estate bubble occurs when housing prices increase significantly due to a combination of high demand, speculation and exuberant spending. These bubbles are often made worse by a limited supply. 

That definitely sounds like the Toronto real estate market. The Bank of Canada released indicators that showed several real estate markets across Canada were indeed considered bubbles. Toronto, Hamilton and Montreal were a few that displayed exuberance and bubble tendencies. Surprisingly, the Greater Vancouver Area did not meet these same indicators. 

A real estate bubble bursts when demand stagnates or decreases while being met with supply increases, which results in a sharp drop in prices. Whether this will happen in Toronto is up for debate. Many have predicted that Canada’s real estate market will burst for the last decade as its demand outpaced supply across many metropolitan areas. For Toronto, the fierce competition has been led by single-family homes primarily. This presents some opportunities for buyers who are more geared towards income properties. Markets can be finicky. But in real estate, there’s always opportunity if you know where to look for it. 

While the Bank of Canada also acknowledged that growing household mortgage debt coupled with imbalances in the housing market were increasing threats to Canada’s economy, it’s no guarantee that a bubble will burst. The economic gains from the housing booms were great but very short-term. Rising mortgage debt could become an issue particularly when you consider the current record-low interest rates. Should interest rates rise, some families may be burdened with more than they can handle. Single family homes have been a driver in Toronto for competition but this has opened up opportunities in other areas such as income properties and multiplexes. Rather than buying a property to live in or with the intention to flip it to capitalize on the rising prices, income properties are a means to generate steady income over time, meaning they are less likely to suffer the same issues as single family homes. 

However, with the Office of the Superintendent of Financial Institutions (OFSI) recently announcing changes to the stress test as well as the Bank of Canada slowing its quantitative easing, it is clear that governing bodies are trying to cool the overheated real estate market. No one wants a real estate bubble to burst. But these changes may not be enough. 

The Canadian Mortgage and Housing Corporation identified in their recent Housing Market Assessment report that in many central metropolitan areas across Canada, the growth of housing prices are unsustainable with overheating, price acceleration and overvaluation being detected. Toronto was moved from a moderate degree of vulnerability to a high degree as the level of indebtedness rises. It is concerning when looking at past bubbles, a burst is usually preceded by five or more years of double digit home price growth, according to a senior economist at Ryerson University – something that has been happening in Toronto for the last six years. 

Despite this concern, many experts disagree that a market crash of dramatic proportions is on its way. With decisive and careful action, many believe Canada and its metropolitan real estate markets will avoid the real estate bubble bursting. 

A rapid decline isn’t likely according to many realtors in the industry, including Leonard. Toronto is expected to remain a seller’s market though the demand we saw earlier this year has eased. With an impending recession, interest rates are expected to rise which should cool the market as well. Additionally, once the pandemic ends and population growth resumes, it is predicted that the new influx of buyers will balance the market. Though, if population growth declines, it is highly possible that Toronto could see a crash with prices dropping up to 35%. That being said, this would bring prices back to what they were less than two years ago. Such a crash would be disastrous for any who bought at the height of the market. 

Though Toronto’s market is still out of reach for many first-time homebuyers, it does seem to be stabilising when compared to earlier months this year. Short-term statistics will often paint a far grimmer picture than reality. Seasonal fluctuations are normal in the real estate market. Many experts believe that in the medium-term, the Toronto market will soften slightly. House prices for Toronto will continue to rise this year but will slow in 2022 and 2023 according to most experts. 

Though the Bank of Canada has said interest rates will remain the same for now, it did hint that they may rise earlier than expected. Despite that, the buying frenzy we saw earlier this year has started to subside. Home prices are high but the outrageous over-asking prices aren’t as common with fewer bids on homes when compared to the earlier months this year. Additionally, many buyers are holding off, with many frustrated at the bidding wars, contant defeats or have decided to look elsewhere. With fewer bidders, prices will rise slower. Though they won’t fall, they are unlikely to grow in huge double-digits that we’ve been seeing. 

Despite the bidding wars and the heat of the market, there’s plenty of amazing opportunities for savvy buyers in Toronto’s market. Multiplexes are often overlooked but are an incredible opportunity for an income property. Single-family homes are dominating the market headlines in many ways with the bidding wars and over-asking prices but multiplexes are less heated. These are opportunities to capitalize on the hot market. If you are looking for income properties, this may be the perfect time. A Fridman Team agent can help you take advantage of this tumultuous time. 


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