If Not Speculators, Who (Or What) is Driving Toronto Real Estate Prices?

The Future of Canadian Real Estate

What’s in store for Toronto real estate, and Canada as a whole? While it’s difficult to predict the market with the uncertainty around Covid-19 and the economy, we expect domestic buyers to continue to be active in the market, due to a number of factors. Here are some main points from a recent Re/Max Canada artcile: 

Interest rates are playing a major role in spurring home-buying activity, as buyers scramble to take advantage. The government is committed to low interest rates until the “economic slack is absorbed.”

Equity gains are inspiring existing homeowners to trade up to larger homes or better neighbourhoods – both in and outside of the city.

Pent-up demand is also a going concern. For every bidding war, there is a handful of disappointed buyers.  They’re still out there, and they’re still hoping to buy a home.

Savings have grown year over year, and some purchasers are sitting on a substantial amount of money. With traditional “safe” investment vehicles like GICs yielding next-to-nothing returns, and stock market risks, many are choosing to invest in their principal residence. The Bank of Canada says savings rose to $180 billion in 2020. Statistics Canada says that the household savings rate was at 14.6% in Q3 2020 and economists estimate that figure will be 13% in the Q4 and continue into 2021. To put that number into context, the average savings rate in 2019 was 1.4%.

Strong economic growth is expected as the vaccine rolls out and confidence returns to the market.

Immagration will ramp up, with an anticipated 401,000 new Canadians coming this year, another 411,000 in 2022, and 421,000 more in 2023. The February 13 Express Entry draw invited almost 28,000 candidates to apply for permanent residence.

Are Toronto Real Estate Speculators Causing a GTA Market Bubble?

There’s been a lot of talk of a “housing bubble” in the Greater Toronto real estate market. Many are talking about speculators – domestic investors fuelling an already overheated market. RE/MAX looked at just over 5,000 individual freehold transactions in the GTA between March 15, 2019 and March 14, 2021 and found that less than 2% of sales were repeated in that time period, leading to the conclusion that speculators are not a significant factor driving the current market and rising prices.

RE/MAX examined home-buying activity in six Greater Toronto Area neighbourhoods – C03, W05, E01, Erin Mills, Aurora and Northwest Ajax – on properties priced between $500,000 and $1,499,999.

Of the 1.58% transactions between March 2019 and March 2021 that were repeat sales, only approximately 20% of these indicated that renovations were made between sales.

Wrong Conditions for Speculators

Investors tend to wait out hot markets, preferring to buy when prices are down and sell when they’re up again. Those who are looking for short-term investment opportunities in the Toronto housing market (and in many other Canadian regional, for that matter) will be hard-pressed to find them under current conditions.

Bully offers and bidding wars are commonplace in the current market, with demand outpacing supply in virtually all areas of the GTA and the winner buyer paying top dollar. The current environment is simply too hot for investors and builders.

There may very well be some investment/speculation occurring in the GTA condo market, as pricing dropped in tandem with condo sales, but investors have always played a role in the condominium market so this isn’t entirely surprising. That’s unlikely to end anytime soon.

RE/MAX Brokers Say Homebuyers Are Not Speculators

RE/MAX brokers in the GTA were clear that there is no speculation in the market at this point. They took their research a step further and conducted an online survey of RE/MAX brokers and agents in Western Canada, Ontario and Atlantic Canada.

Learm more in this recent article and reach out to discuss your current Real Estate Needs. 

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