Flipping through The Globe and Mail’s real estate section these days is a boggling experience. This Friday’s showed clear signs of madness at both the high and low ends of this season’s red-hot market. A four-bedroom, “neo-classical” mansion in Oakville, just west of Toronto, recently sold for $18-million. A three-bedroom townhouse, also in Oakville, sold for $1,050,000, $250,000 “over asking.” A little Toronto bungalow that went for $550,000 as recently as 2011 is on the market for $1,125,000.
Every sign points to the kind of frenzy that periodically overtakes Canadian housing. The average price for a Greater Toronto home passed the $1-million threshold for the first time in February. The selling price of a detached house jumped 23 per cent compared with a year earlier, reaching $1,371,791. Nationally, the average home price in February was a record $678,091, up 25 per cent.
The mindset that takes hold at times like this is familiar. Seeing prices soaring, buyers rush to get into the market before they miss the boat. Speculators jump in after them, hoping to flip properties and make a few hundred thousand bucks overnight. All this demand pushes prices up even further, which causes more panic buying at stupid prices.
The fever rages until something happens to put the fear in buyers – a downturn in the economy, a government announcement about mortgage rules, an uptick in interest rates. Prices plunge and the opposite mindset sets in: The sky is falling, time to sell, sell, sell. It happens, to various degrees, for every kind of asset, from oil to gold to stocks.
Somehow we have managed to convince ourselves that Canadian homes are different. Their prices have risen for so long that it seems they must keep on rising without end. Haven’t a whole series of international agencies and experts predicted a drop in the market, only to be proven wrong again and again? Didn’t Canadian Mortgage and Housing Corp. itself say prices would fall by up to 18 per cent in 2020 because of the pandemic, just to see the head of the CMHC offer an apology later for the mistake? The economy is about to come roaring back when the plague lifts. Interest rates are at rock bottom, making mortgages easier to carry. What could go wrong?
Real estate boosters will tell you that houses are different from other things we invest in. People live in them, you know! You can’t live in your art collection. They will tell you that Canadian homes, in particular, are capable of defying the laws of gravity. The streams of newcomers flooding into the country mean that demand for housing is sure to remain strong, and high demand means high prices.
There is some truth in that. Canada’s big cities are booming and the country’s future is bright. Rising home values are in some ways a sign of confidence and optimism – good things, we can all agree.
But, in the end, houses and apartments are just a commodity like anything else, subject to the same peaks and valleys in price that come to them all. What goes up must eventually come down. To believe otherwise is to succumb to the very human tendency to think that things will keep on going as they happen to be going at present. They don’t.
Both the United States and Britain suffered a collapse in home prices at the end of the 2000s. Toronto’s market crashed at the end of the 1980s (about five minutes after I bought my house there, as it turned out). Don’t ever think “it can’t happen here.” It has and it will.
When is anybody’s guess. No one really has a hot clue. Not the real estate board or the Bank of Canada or the economists who issue earnest predictions in the media. But count on it. The Wikipedia page for Real Estate Bubble dryly lists the Canadian bubble as “ongoing currently.”
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Just look at the story of a little house in Leslieville, a trendy district on the east side of downtown Toronto. The internet loved this one. The yellow-brick, two-bedroom shoebox went on sale March 11 for $999,900 and sold four days later for $1,460,000, nearly half a million over asking.
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