The cost of houses in Canada will most likely keep rising at a rate of 17% yearly. Canadians largely have an idea of what a $21 million home looks like. This more or less bear a resemblance to the Toronto mansion recently put on the market.
The regular cost of a house in Toronto is $548,547 and it is up by 8.2% this year. The strength came from greater Toronto and southern Ontario areas. The hottest market is no doubt southern Ontario due to the special fascinations in the city like the Niagara Falls. Imagine if the price of houses in Canada continue to increase at its current rate, then the typical dwelling in Canada will hit the $21 million mark in about 24 years. It is irrational to think that home prices will sustain this hot pace forever.
Nevertheless, so many rational home owners are positive. Note that 17% annual gains are not negotiable, at this rate the average price will double in every five years. What truly matters is the influence of double-digits on home-buyers’ and home owners’ expectations. The more annual prices increase, the more expectations will rise. Perhaps the typical house may not be 21 million the thinking goes, then again given the fact that chubby teardowns in hot markets are already selling for a million plus, it’s not a stretch to think the average homes will be worth at least a few million dollars not too far down the road.
The up-to-date information from statistics in Canada shows that the remaining balance for personal lines of credit were close to $270 billion in January, up from $115 billion a decade and $30 billion in 2000.
Fundamentally any property that was sold after a fairly short holding time during 2004-06 would have accounted in big return for the investors and, thus, might have been specifically attractive as a signal of potential gains for new investors. We find that simply living near homes that are flipped also influences investment behavior, especially during the periods of most rapid price growth.
With Canada’s housing market rising at such fast pace, it’s hard not to be reassured into thinking that double digit price gains are the new norm.