What will happen to Toronto real estate in the financial crisis
A financial crisis occurs once every single decade. This is why it is no surprise that the global environment is now showing signs of the Global Financial Crisis. I remember 12 years ago, as a fresh university graduate, a financial crisis had come. We were hearing extremely sad news worldwide. One that I still remember to this day is tuning in to the news and hearing that Wall Street traders were committing suicide due to this. This was the greatest recession in history and many people were fearful for the future. For the people hoping to time the bottom of the financial crisis may have a hard time doing so.
As you can see from the provided chart, the financial crisis did not impact the Toronto housing market as much as one would think. The average price in 2008 was $379kk which is actually a slight increase from last year. While the average price in 2009 was $395k, we can see that the market has picked up significantly after 2010. This is then followed by a historically low-interest rate over a decade.
While the interest rate was at a historical low, people were finding other ways to invest and grow their money. Putting money in the bank offered an extremely low return. As such “Financialization of the Housing Market” has become a trend. The financial excess and global capital that people have are now being parked in real estate. The large shift in the mindset of looking at a house as a “necessity and something to build a home from” to “investment/commodity” (perhaps one of many) has devastatingly shown the impact of the unequal accumulation of wealth in Canada. This can also be attributed to the government’s lack of foresight, low borrowing costs, quantitative easing (printing money). Toronto is recognized as one of the most economically influential cities in the world, it is no surprise that Toronto attracts a lot of global capital. In addition to Toronto’s attractiveness as a strong city, the Bank of Canada is going to cut its interest rates by half a percent. This makes real estate investment more attractive and qualifies many new buyers who initially could not qualify. Last but not least, the major forces that are driving the Toronto real estate market is our strong population growth. Our market was not driven by “hot money” like Vancouver was a few years ago. The “hot money” in Vancouver was the flood of foreign capital (mainly from China) that wanted to hedge against the uncertainty back home. As such, for those of you who think the market will drop due to the global economic downturn, you might be disappointed by the actual outcome.