An acorn falls on Chicken Little’s head and poor Chicken Little ends up dead. So goes one of the more macabre versions of that childhood tale.  Foxy Loxy, on the pretense of bringing Chicken Little to Lion, lures Chicken Little into his fox den “never to come out again.”  About twice a year the media is inundated with news of the sky falling on the Toronto market. If we were to go back in time, we would see that this pattern has been consistent since about 2007, when the market started picking up at a rapid rate. It’s hard for recent homeowners to be anything but terrified with headlines like,

Insane expectations driving the Canadian Housing Market

And,

Housing Market’s hot but talk of bubble getting louder

To the prospective buyer, this news seems like a “just in the nick of time” saviour. The problem is, there’s no clear direction for would-be property purchasers and current homeowners because there are just as many news articles that make the exact opposite prediction

For example:

Predictions of Housing crash have proved wrong for years

And

Five Reasons House Prices Won’t Crash is 2016

We’re not economists and  we’re not qualified or certified to advise our clients on financial matters related to interest rates. We therefore won’t and can’t make a definitive argument for either side of the debate. However, here are three reasons why we have confidence in the Toronto market:

People want to live in Toronto

Housing bubbles occur when there is rampant speculative buying. If mortgage rates increase, the investor is far more likely to offload their investment quickly. If the market is driven by investors, rather than end users, even a small increase in interest rates could be damaging to the market. However, although there is a lot of investment purchases in Toronto, the majority of homebuyers are end users. Toronto is the economic hub in Ontario. It is also a great city. People want to live here and they will pay to do so. If that changes, if, for example, unemployment suddenly spikes in Toronto, it might be a different story.

Stable Interest Rates

There has been no indication from the banks that interest rates will go way up in the near future. Arguments to the contrary often rely on protracted theories about the US economy.

High Down payments

In February the Government of Canada increased the minimum deposit on house purchases between  $500,000 to 1 million in order to make sure that home buyers weren’t over leveraging themselves. This was expected to cool off the market somewhat as it knocked a bunch of buyers out of the. In fact, it did no such thing. The majority of homebuyers, it turns out, are buying houses with large down payments. If interest rates do rise, it will take longer for owners to lose all their equity.

Advice

Our constant advice to buyers and sellers who want to trade in this market, either as investors or end users, is to hire a local agent. They will guide you on pricing and location so that your biggest asset is protected from market variations. If you’re thinking of buying or selling, give us a call. We’re experts on the Toronto market.