Bubble, Bubble, Bubble

Published on 7th August 2019

Bubble, Bubble, Bubble. Don’t you just love it when Toronto is perceived to be in a bubble? People tend to overreact to news like this, panic and proceed to selling their properties. Well, this just means more opportunity for you and I as investors to pick up smart investments while these UN-savvy investors take news headlines to heart and act on impulse.

Toronto: Accused – Last time, there was a study that accused Toronto of being in a real estate bubble. Typically, we get one bubble headline like this per year (see article below for the last time this happened in 2018 and my explanation at the time; my clients were able to pick up some great cash flowing properties because of this).

READ: Zhen’s 2018 Bubble Decryption (2018)

Is Toronto Really Unaffordable? In 2018, this bubble phenomenon was based on an index created by some company. This year, the headline is accusing Toronto and Vancouver of being “unaffordable” using the metric of how much income you need to be able to buy your home (i.e., the income to average price ratio). Below is a nice chart indicating the type of money you need. Yup – you’re reading that right, the approximate incomes listed are all over 6 figures!

Truth in the Numbers? We all know that it’s tough to be able to buy in these cities now, as most people that can qualify for the mortgages to buy properties are either couples or have family money. That is not surprising by any means, and has been the basis of my Insight Articles a number of times already

When you break it down for Toronto, 2 young professionals making a decent income of $80K per person will suffice. That’s actually quite reasonable, because a lot my clients well exceed that $80K amount.

However, there is undeniable truth in calling Toronto unaffordable when you compare the pricing stats to the average income of $45K in Toronto. This was previously talked about in one of my earlier Insight Articles last year:

READ: MORE Unaffordable times ahead (2018)

Price to Income Ratio – Here is a chart that I used last year showing the housing price to income ratio. Back in 2018, Toronto had prices that were almost 12 times that of the average income, and even then, we only ranked 99th globally (as per the table below). Toronto has definitely risen higher on this table now because real estate prices always outgrow the average income.

So to that end, it’s kind of pointless to say that Toronto is in a bubble based purely on the housing price to income ratio. There is no real urgency for homeowners in Toronto to sell, while on the other hand, more affluent people keep immigrating to Toronto and buying up property. That’s why I keep telling my clients to NOT sell!

Here is another interesting chart courtesy of Rock Star Real Estate with some indicators that I put for you to show why using the price to income ratio to call for a bubble is irrelevant.

The Gap is Too Big – You can evidently see that incomes will never catch up to the cost of buying in Toronto. Just take a look at the price multiplier since 2016 – the housing price is now at over 12 times the income, and trust me it’s only getting worse. It’s been like this for 3 years now, even with the big drop off in the market in 2017 when the foreign buyer tax kicked in.

The Wrap – In any case, this Insight Article is meant to serve as a reminder to you that headlines should not be dictating whether you should buy or sell. Most of the time, headlines are non-sense and are “click bait” material to grab your eyeballs and sell ads.

If you saw the bubble headlines and thought about selling your property in Toronto, I hope this Insight Article offered you a different perspective. As a matter of fact, rather than selling, you should be buying more investment properties now since there will be a population boom coming our way over the course of the next 10 years. If you’re in this boat and want to seize the buying opportunity now, then send us an email and we’ll help you do just that!

Until Next Time, Happy Real Estate-ing,
Zhen

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