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Friday, October 16, 2015

GTA and Vancouver Suburbs Prices Soaring

When will Canada experience a US style burst?
If you think the prices within Toronto and Vancouver are skyrocketing, wait til you see the prices for the suburbs - which would normally be considerably cheaper. All of this adds up to an ever-inflating housing bubble in two of Canada's hottest real estate markets.

According to the latest Royal LePage housing report, the cost of homes in the suburbs are surging, eclipsing those of the city core in some cases.

Home prices in the Toronto area climbed 11.3 per cent in the third quarter from a year earlier, to $612,261. In the city proper, the cost was almost $640,000.

The median price of a two-storey Toronto home, is up 17.1 per cent to $961,656. The price of a similar home in nearby Richmond Hill rose 18.6 per cent to $963,561 and in Vaughan by 18 per cent to $842,173.

Vancouver homes are also high, up 17.3 per cent at more than $1.9-million. The corresponding prices in Richmond and Burnaby surged 23.5 and 20.9 per cent, respectively, to about $1.2-million. A  two-storey in North Vancouver is $1.3-million, while those in West Vancouver are going for about $2.8-million.

Across Canada, home prices rose 0.6 per cent in September from August, and 5.6 per cent from a year earlier, according to the Teranet-National Bank home price index released yesterday. The index showed that prices climbed 10.4 per cent in Vancouver and 8.6 per cent in Vancouver

"The Vancouver index, at 201.24 in September, is the first to top 200, meaning that prices in that market are slightly more than twice as high as in June 2005."

With respect to these two markets a bubble has been forming for over two decades, with prices reaching dizzying heights - especially in Vancouver. At some point the bubble has to burst and prices will tumble, but to do so there has to be an impetus - something to set it off. A proverbial flea that broke the camel's back.

The 2008-2010 recession wasn't enough to do it. The current 2015 oil-collapse recession plaguing Canada likely won't be enough either, because when you consider that the Canadian dollar has slid dramatically over the past two years, what you realize is that if you measure housing prices in US dollars, the prices haven't really gone up that much.

The Canadian dollar hasn’t been above parity with the U.S. dollar since Valentine’s Day 2013. Since then it’s dropped at a record-setting pace of 23 per cent by July 2015.


Now you might think, oh the dollar is down, wouldn't that effect our economy? And you would be right - it does. It boosts our exports because the prices of doing business/buying goods in Canada is now cheaper. It also means the prices of investing in real estate in Canada is now cheaper too (for non-Canadians).

One would wonder if it were possible to take your money you had invested in oil - if you timed it right before the oil prices collapsed - and reinvest in real estate. Then when the oil prices go back up eventually, the price of the Canadian "petro dollar" would rise in value too - which means when you sell the real estate, you've then made a bundle on both the increased value of the real estate, but you've also made a bundle off the fluctuating US-CDN exchange rate. Hypothetically speaking.

Meanwhile Canada has an election coming up very soon...

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