Toronto’s Hot Housing Market

“Tight supply starts to become a justification for all outcomes,” says Beata Caranci, chief economist at TD Bank Group. If buyers are convinced supply is low, then the big price increases will seem logical, increasing their fear of missing out and pushing them to act irrationally. Toronto’s price surge did indeed coincide with a significant drop in listings, but that could be a result of psychology on the seller’s part.

Some homeowners could be holding on to their properties in anticipation of prices rising even further. Families that would otherwise sell their homes to upsize could also be staying put simply because prices are so high, and competition is so fierce, that the hassle isn’t worth it.

An influx of deep-pocketed foreign investors could also be taking properties off the market, especially since Vancouver implemented a 15 per cent tax last year for foreign nationals. “I do believe that at least some investors went directly from Vancouver to Toronto,” Porter says. “That has played a role in launching Toronto, and some surrounding cities, into the stratosphere.” The same is true of domestic investors and speculators.

According to TD, roughly 17 per cent of homes in the region were resold within two years as of March 2016, up from nine per cent a year earlier. Excess speculation restricts supply and jacks up prices, too, which further cements the belief in the minds of buyers that they have to act fast, and that the recent pace of the market is sustainable.

Buyers are driving farther and farther outside Toronto until they can find a home they can afford. (That’s what helped made Guelph, Ont., the most desirable place to invest in real estate, according to the latest annual rankings from MoneySense.com).

Stephanie Small and her husband, Graham Ross, have rented an apartment in Toronto for the past nine years with their two daughters, but their landlord would like them out in order to renovate. Other rentals in the city were smaller than their current place, not to mention way more expensive. Priced out from buying a home in Toronto, they settled on Ajax, a bedroom community east of the city. In September, they placed their first bid on a home listed for $460,000. It sold for more than $600,000. “We kept being told by our real estate agent that it was an anomaly,” Small says. “But we’ve put bids on six houses since then, and we’ve been outbid absolutely every time.”