A house is something we all need, it is a necessity of ours. In fact, it is the most valuable asset
that majority of Canadians own. Do you want to know what your house really will be worth at
the end of 2018? Hello, my name is Edwin and I am very interested in the housing market and one
day I believe I will become a real estate investor. I am going to share with you some basics of
Toronto’s real estate market, what drives house prices up, what drives house prices down and
what keeps them flat.
My presentation is focused on real estate market in Toronto because most of you live in this
beautiful city and care about in which direction the market will go in the future.
I will start with the factors which drive house prices up in Toronto. There are three main
factors: inflation, immigration, and government regulation. The most critical factor is inflation
caused by money printing. The government goes to the printing press or nowadays to a
computer and adds continuously money to the circulation which reduces the value of money. For
example, when my parents were kids, 30 years ago, a pound of apples cost 39 cents, but now
we pay .50 for the same pound of apples which is almost a 400% increase. For the same
period of time house prices grew just as much. As long as the government continues to print
money the value of goods and services will continue to rise.
The second factor is immigration. Immigration is the process of people moving from one
country to another. Canada is accepting about 300,000 people a year and almost 100,000 of
them settle in the Greater Toronto Area due to jobs and higher quality of life. They all need a
place to live. Such high number of immigrants to Toronto results in high demand for houses
which means higher prices.
The third and final factor causing price appreciation is government regulation. In particular, the
laws governing Green Belt around Toronto. The Green Belt is the land where the government
prohibits development. This results in the scarcity of land available for development. If we can’t
build any more houses, the supply will be reduced and competition and house prices will
Now I am going to talk about what drives the house prices down in Toronto. First of all, rising
interest rates make houses less affordable. As you might know, the Bank of Canada increased its
mortgage interest rates by 0.75% over the last 6 months and it promises to continue to do so.
It puts substantial pressure on home buyers on what they can afford. Also, the government
changed the rules about how banks should give mortgages. From January 1, 2018, about 20% of
buyers can no longer afford a new house which means fewer buyers on the market. And less
buyers on the market mean the sellers are forced to reduce their prices. Also, the real estate
prices historically fluctuate from bust to boom and boom to bust in a 10-15 year cycle. The real
estate market in Toronto did not experience a bust for the last 15 years and the market is ready
for a big correction.
Now, the moment you have been waiting for, the most important part of my presentation is my
prediction of your house price for 2018. I think in the next 1-2 years the factors which drive
house prices down will overweight the factors that drive house prices up and overall, the house
prices will reduce by 10-20%. So, in the close future, your houses will lose their value. However,
in the long term, 3+ years, mostly due to inflation and immigration your houses will definitely
increase in value.
Here is my humble advice to you. If selling your house is not urgent please wait for a couple
years. If you plan to buy a house, please do it in the next 12 months. You might think I am just a
kid, but believe me, I did my homework and studied the topic. If this presentation helps at least
one person in this audience then I can say I reached my goal.
Thank you very much for your patience and attention.
The Finance Conductors
A bright kid’s outlook on Real Estate cycle in TORONTO