Why do I bring up Toronto? That’s not even in the US.
Well, in order to understand bubbles in all major cities, you must understand how they get to that point and this will hopefully serve as a warning for investors and those looking to enter housing markets for the first time.
Toronto is the largest city in Canada, and despite being a fast-growing city, it is the one global city with the highest risk of entering a housing bubble. Even more so than New York, London or Hong Kong. Interestingly enough, this is the first time that any Canadian city has made it into the top 20 housing bubble markets (Vancouver, isn’t too far behind).
According to a report by UBS cited at CNN Money, house prices in Toronto have nearly doubled in the past 13 years, while at the same time rentals have only increased by 5%. This means that home prices have outpaced the majority of salaries.
Why have property prices jumped so high so fast? UBS researchers believe that three factors are to blame for the boost in housing prices, not just in Toronto, but other major cities:
Low interest rates – it’s easier for borrowers to pay for loans with low interest rates
Rise in wealthy households – more money with the rich mean more expensive properties are being bought in the middle of cities
Construction for new properties is having a hard time keeping up with demand
All three factors perfectly apply to Toronto, and should serve as a warning for other cities with similar factors:
Canada’s central bank has its key interest rate set at 1.0%; this is just above the 0.5% from the financial crisis and has yet to go up again.
Canada has a huge surge in immigrants, and not just refugees: nearly 8,000 millionaires have moved to Canada in 2016 — Chinese millionaires are relocating to Vancouver and many Europeans are expanding tech operations in Montreal and Toronto.
What will burst the bubble?
