Vibrant and bustling Toronto vs. gloriously gorgeous Vancouver have on some level always been in competition with one another. Have you noticed? There’s the ever present east/west thing going on divided by grand mountains, four thousand plus kilometres and mindsets as different as night and day – laid back athletic vs. multicultural diversity with a big business attitude.
Real estate speaking, Vancouver and Toronto are clearly the superpowers fuelling the Canadian real estate industry but in terms of price sustainability they may not be headed in the same direction.
The proportion of million dollar plus detached homes in Vancouver is 90% vs. just 11% a decade ago.
During the second quarter of 2016 as compared to the same time frame last year, the *typical two story home in Vancouver sold for $2.36m while the *same home in Toronto was $974,937.
Price increases of 5-10% are not considered to be unreasonable. In the second quarter year over year, Toronto saw a price increase of just 10.5% slightly higher than the National increase of 9% while Vancouver prices increased by a whopping 30.7%.
Looking at recent history, prices in Calgary rose 30% per year between 2003-2005 and by 2007 that city was in a serious flatline situation. Fast price increases like these are simply unsustainable. What’s especially disconcerting is that Vancouver is already the country’s most expensive city.
Government regulators and financial institutions are looking at ways to slow down both markets but an increase of interest rates is highly unlikely. We already have extremely strict lending guidelines and defaults of the riskiest insured mortgages (less than 20% downpayment) are still very low at just 0.3%.
Purchasers from China, Russia and Iran, and now Britain and the US are attracted to Canada for it’s safety, security and diversity. There’s no shortage of immigration or demand for both low rise and condominium type housing.
I’ve said it before that our real issue isn’t demand. We have a serious supply and the solution isn’t a quick or easy one I’m afraid.
In the meantime for average Canadians the real concern is rising levels of household debt – an issue directly related to the erosion of affordability.
Are societal influences to blame? The need to keep up with the Joneses (or Kardashians for that matter)? The unwavering desire to live the idyllic “luxury” lifestyle? The omnipresent “more is better” mentality?
Will Toronto’s prices continue to grow or level off (the former is my guess)? Will we see a sharper downtown in Vancouver ( only time will tell )? Will we see a return to some old school values like saving money and living within our means? Hmmm that might be the question to ask…
* Royal Lepage composite formula focuses on typical properties and excludes sales of luxury mansions - a formula often more reliable than average prices.