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Toronto’s hot market: ‘It’s completely unreasonable what people are paying for homes right now’

Interactive: Explore home price changes in neighbourhoods across Toronto. Click and zoom to move around, or enter an address in the search bar.

TORONTO – “Right now folks, we have 184 cranes around the city building developments,” Doug Ford boasted last month at the Toronto Real Estate Board’s annual meeting.

“That’s more than New York, Chicago, Dallas,” the councillor added. “Combined.”

Chances are you’ve heard that stat before. Ford was referring to figures released by the city earlier this year measuring the number of high-rises under construction.

Depending on your perspective, it could signal a city at last attaining world-class status or a property bubble ready to burst.

In depth: Canada’s real estate reality check

For first-time buyers in a market where affordability is strained to the max, it increasingly looks like the latter.

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Toronto’s Scarborough Bluffs have seen prices grow more than anywhere else in the city – more than 60% since 2005. George Browne/Global News

“It’s crazy. It’s completely unreasonable what people are paying for homes right now,” says Anant Parikh, a marketer looking for a home in a centrally located, downtown neighbourhood.

In a saner marketplace, 35-year-old Parikh and his wife would have no problem buying a home. The dual-income couple brings home well into six figures annually, has put a healthy dent in the mortgage on their downtown condo and saved up almost 20 per cent of a new down payment.

READ MORE: Haunted house-hunting in Toronto

‘People are just going nuts on bidding wars’

They’ve looked at 60 houses in person over the last three months. “What we’re finding is that places are going for way over what the market is, or what they’re being valued at. But the market is willing to accommodate that because people are just going nuts on bidding wars,” Parikh said.

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“We’re seeing people pay $150,000 to $200,000 over a reasonably listed home.”

In the areas the Parikhs had been hoping to raise their one-year-old daughter, $1 million “might get us a small detached home, or semi,” he said.

“What we’re wrapping our heads around is, do we look at different areas or do we raise our price point?”

The latter would mean a higher debt load – quickly becoming the norm for Toronto homebuyers.

The steady influx of condo developments in the central Toronto neighbourhood of Davisville has seen the average price in the wealthy area actually fall by 5.3 percent since 2005 – the only neighbourhood to report a decline. But don’t expect a deal on single-family homes or townhouses – they’re still among the city’s priciest. Jamie Sturgeon/Global News

‘If you go to an $800,000 mortgage and rates go up by two points, you’re screwed’

At the beginning of 2005, median home prices in Toronto were about four times the median average household salary. That figure has widened considerably: A median home of any type will cost close to seven times a Toronto household’s median income.

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There’s a yawning gap between what households are earning and the houses they’re paying for. And debt is filling that gap.

Parikh isn’t about to take on a home that’s priced at four times the family income.

“Perhaps we’re taking a conservative look. But we also looked at, if one of us lost our job, could we afford to keep the house,” he said. “That’s the bottom line for us. So you’re looking at about four times is a stretch, probably three, three and a half is max of what we would go to. And that’s pushing it a bit.”

“If you go to an $800,000 mortgage and [interest] rates go up by two points, you’re screwed.”
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As a buying frenzy sends house prices skyward, some economists are eyeing Toronto’s thicket of highrises with unease over oversupply. There were more than 23,150 unsold units last month – a rise of 13 percent from a year ago.

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The glut has raised some concern. The Bank of Canada suggested earlier this year that overbuilding within Toronto’s condo market could lead to sharp slide in prices and, potentially, other areas of the city’s housing market and the broader economy.

Big bank economists aren’t as concerned.

“We believe that fears of a massive supply glut in Toronto’s condo market are overdone,” TD Economics said in an Oct. 18 commentary. But the bank noted, “rising completion of units over the next few years will lead to growing excess supply.”

Condos a deal by comparison

Thankfully for those harbouring bubble fears, it’s simply far too expensive for the majority of would-be buyers to get into the market via any other housing type.

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The average price of a detached home in the Greater Toronto Area climbed another 9 per cent in October, to $686,087. Payments on that kind of house would gobble up 42 per cent of an average household income in the GTA, according to TD Economics’ affordability reading.

Meanwhile, condo developers have been seeking to entice buyers, making the units downright affordable by comparison, TD says.

“The affordability advantage for condos will help to absorb the large supply of new product coming on.”

Affordability calculator: How much home can you handle?

Where’s Toronto hottest? The city’s fastest-appreciating ‘hoods:

1) Scarborough Bluffs – 62% growth, average 2012 sale price $503,000

2) The Annex-Wychwood – 61% growth, average 012 sale price $994,000

3) O’Connor-Parkview 57% growth, average 2012 sale price $585,000

5) York Mills – 53% growth, average 2012 sale price $1.8-million.

Compares average 2005 sale price for all housing types to 2012 average price.

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