Tuesday, May 24, 2016

Quick Thoughts: Are we in a housing bubble?

Off the top I will admit that I remembered last night and late tonight that it was Tuesday and hence blog day. My day disappeared into a couple of projects, errands and work and the next thing I know I have less than three hours to post something interesting.

I did not have time to have anything properly prepped (last said by me, red faced, to a high school teacher). Instead I thought I would write down something that has been on my mind for weeks/months but haven't found the time to write out properly. I may revisit this with a proper post later.

I live in the Greater Toronto Area. I live with my family and we have lived in the same house my entire life. Every year prices have crept up and up and pushed potential buyers further afield. I am of the right age that a few of my friends have bought their first or second homes. More than a few have been pushed further into the Toronto commutershed, or deeper into suburbia to find homes they can afford. It's the 'drive until you qualify' formulation writ large.

This philosophy seems like a poorly disguised trap to me. Living further away from your work and essentials drives up costs, hidden in gas bills, second/third cars, insurance, and most importantly - time. It also has this daunting ripple effect. People cannot afford to live in inner Toronto so move to the inner suburbs, the inner suburbs prices people out and they live in the core 905, and out and out they go. Now my neighbourhood of simple 1960s suburban homes prices at ~$500000 when they cost a fifth as much 20 years ago. It seems to me the people living in these houses couldn't buy them today if they were forced into the market with no equity.

Watching a film like The Big Short has me wondering if the Canadian housing market found the perfect amount of heat to keep prices and investment flowing in the industry but not clearly manifest as a bubble. Prices, as near as I can tell, have not gone down in years and years. No one putting their house on the market today expects to lose money.

There are other troubling symptoms, but the excess isn't here to suggest the kind of runaway freight train that happened in the U.S. Still, I am worried, and the pace may be deceiving us. How sustainable is this ever climbing ride? Is a plunge on the horizon? And if it is, does the longer the wait mean worse outcomes for us all?

No comments: