Will the Toronto housing bubble burst in 2022? The Bank of Canada says Toronto housing is not a bubble, but UBS disagrees.
Many people are talking about when the Toronto real estate market will crash now that interest rates are rising.
Bank of Canada’s Perspective on the Toronto Housing Bubble
According to the Bank of Canada, the Toronto housing market is just exuberant, using a complex model explained here.
UBS’s Perspective on the Toronto Housing Bubble
The Union Bank of Switzerland says Toronto is one of the major cities at risk of bubble territory.
“Over the last ten years, the real price level has almost doubled amid strong population growth and falling mortgage rates. After the introduction of restrictive regulations (e.g., a foreign-buyers’ tax and rent controls), the market took a breather in 2018 and 2019, only to reaccelerate in 2020. Real prices increased by almost 8% from mid-2020 to mid-2021. To finance purchases in an environment of higher prices, buyers have taken advantage of historically cheap mortgage loans and looser mortgage stress test requirements for households. Increasingly stretched affordability—according to the National Bank of Canada, buyers in Toronto require the highest income in the country to qualify for a mortgage—poses a challenge, as stress test rules have recently been tightened again.
Moreover, the high price levels are increasingly dependent on low interest rates. The Bank of Canada is expected to taper in 2022, well ahead of the Federal Reserve, a move that would likely raise mortgage rates and discourage foreign real estate investments. This, in turn, could lead to an abrupt end to the current housing frenzy.” – UBS Global Real Estate Bubble Index Report 2021.”
Toronto Housing Bubble risk as ranked by UBS Index, 2021
So who is right, the Bank of Canad or the Union Bank or Switzerland? It depends on what you believe. The UBS analysis is a more traditional or fundamental analysis of the market. The Bank of Canada is using and advanced perdictive analysis model based on behavioral patters and market fundamentals. Models are just models after all and not an absolute science.
What do you think is Toronto housing market is in a bubble or just experiencing a run of exuberance due to population growth and disposable income?
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