While the price of detached homes in Toronto continue to stagnate, and in many instances fall, the cost of condos has been going up rapidly. Now the Bank of Canada (BoC) has put out a warning about condo investments becoming risky as they are the latest target of real estate speculators.
Because the condo prices have soared so much and show no sign of stabilizing, there is a case to be made that that something other than market fundamentals are driving them forward.
On the west coast in B.C.’s Fraser Valley, condo prices have been soaring at an annualized rate of 60 per cent in recent months. Condos there are more than 40 per cent pricier this spring than last, according to the local real estate board.
Markets that are driven higher by speculation are at greater risk of a bust, the Bank argued.
The real estate blog Realosophy, has compiled data showing that the largest declines in detached-home prices in Greater Toronto took place in the areas that had the most speculation.
Realosophy data also showed that prices fell the most in places where houses were most likely to be listed for rent immediately after purchase.
He said the “speculative psychology” is now “cooling” in Toronto, thanks to recent measures like the new mortgage stress test and a non-resident speculation tax put into place last year by the previous provincial Liberal government.
While the Bank of Canada isn’t predicting a condo market crash, it is only cautioning buyers that investing in one has become riskier and that no one should be under any illusions about the price growth continuing into the next year.
Meanwhile more condo buildings are going up across the GTA to keep up with the insatiable demand.
Investors and speculators have been warned. But unless the government takes drastic measures to discourage speculators who are distorting the supply-demand cycle and shutting out genuine buyers from the market by making the price of a condo unaffordable, it is inevitable that such booms followed by crashes could well be cyclical in the years to come. – CINEWS