The Market Crash Is Coming…………..Right? – Toronto Realty Blog
I’m pretty sure I’ve written this post before.
In fact, I’m pretty sure I’ve written this post before, while using the words, “I’m pretty sure I’ve written this post before,” before.
If that doesn’t lead you to the conclusion of today’s post, without needing to read further, then I don’t know what will.
Oh, folks. It pains me to write this. It really does.
I mean, what’s the definition of insanity, anyways? I feel like this is the sixth or seventh time I’ve tackled the “market crash” topic, and the result has always been the same.
This time, will it be different?
Is the crash coming?
If the market dropped by 15%, would that be a “crash?” And would it be enough to satisfy those who have been calling for a crash before the market gained, oh, I dunno, say, 170% since they started?
I got into real estate in July of 2004. Since that date, I have heard all kinds of talk about a market crash, and the talk has been very strong at certain points.
2008, for one. The market in the United States crashed, so it seems to reason that we’d talk about it here in Canada.
The early-2010’s for sure.
In 2017, the market actually did crash, momentarily. But it was like one of those “planned demolitions,” where engineers place explosives in all the right places of a dilapidated building to take it down effectively, and people watch from afar and, for some reason, cheer. The federal government said that they were going to “take steps to cool the housing market,” and that’s really all it took! Not the actual steps, but the words uttered, and the market dropped spectacularly overnight. It recovered in multiple segments here in Toronto by year’s end, although some of the stats took until 2020 to catch up.
Regardless, I have heard “bubble” talk and crash-speak for seventeen years now, and yet it hasn’t happened.
Here’s the GTA average home price since the year before I got into real estate:
You could pick any point on that line, and I guarantee, you’d have found multiple economists, financial analysts, authors, and “experts” who were predicting the market crash.
So what’s it going to be, folks?
Does anybody want to predict that the average home price drops to $500,000? Is that 45% drop coming?
Does anybody think the crash will be worse?
Remember in 2013 when Nicole Foss suggested that real estate values in Canada would drop, on average, by 90%?
Alright, fine. You’ve heard that bit from me before.
But given what’s going on in the news right now, I can’t quite help it.
Everywhere I look, I’m reading about the crash. The bubble. The chaos that’s going to ensue!
How about some headlines from this past month?
3/4/2021, Toronto Star, “‘By All Objectives Standards It’s A Bubble,’ Even Realtors Say Accelerated Prices Are Worrying”
3/10/2021, Financial Post, “David Rosenberg Says Canada’s Housing Market ‘In A Huge Bubble’”
3/11/2021, BNN Bloomberg, “Bank of Canada On Guard As Bay Street Warns Of Housing Bubble”
3/25/2021, BNN Bloomberg, “Toronto’s Hot Housing Market Raised To ‘High Risk’ By Regulator”
3/25/2021, Global News, “Canada’s Housing Market Is Showing Signs Of Overheating, CMHC Says”
3/26/2021, BlogTO, “Toronto’s Real Estate Market Is So Out Of Control That It’s Now Considered High Risk”
And that’s just the ones I remember reading!
Head to Google and punch in a number of keywords like “bubble” or “crash” and I’m sure you’ll find more.
How about a few leftist opinion pieces?
3/13/2021, NOW Magazine, “Real Estate Agent Says That A Scarborough Bungalow Listed For $2.2M Does Not Indicate A Bubble”
3/18/2021, Vice, “Canada’s Housing Bubble Is Getting Way Worse, And Younge People Are Screwed”
3/26/2021, Better Dwelling, “Canadian Property Bubble Nears Systemic Failure, And Not Even A Big Crash Can Fix It”
Ah, yes, fix.
Fix the problem.
Fix, as in, everybody gets to own a red-brick Georgian centre-hall?
I’ll leave that topic for another day. I made the mistake of reading an old buddy’s Facebook rant the other day, as well as the accompanying comments from his, um, “like-minded” new group of friends, and I can’t stomach the words “should” as it pertains to housing, the economy, and personal finance anymore…
I don’t recall a time in my career when I have heard more crash-speak, or seen more headlines, than what I’m seeing now.
But what does that mean? Does it mean anything at all? Do the loudest voices speak the most truths? Can I read anything into this?
I was on BNN last week to talk about the market, and in the pre-interview, they referenced David Rosenberg’s comments about the “market bubble.” I was hoping they’d ask me about this, but they did not. I wanted to say that, while Mr. Rosenberg is far more intelligent than I am, he, along with many of his colleagues, have been talking about the “froth” atop the market for a decade now. Some for even longer…
March 17th, 2008.
Does that date ring a bell for any of you?
That was thirteen years ago.
That’s when many people decided that the Canadian real estate bubble was a real thing and that they were going to wait for prices to crash so they could finally get what they wanted
Why did I pick that specific date?
That’s when this book was released:
We haven’t talked much about Garth Turner in the past few years. I think many of us just gave up on the idea that this guy actually knew, at any point in the last twenty years, anything that would or could happen in any market.
What I wanted to say during my BNN segment was this: the average home price in Toronto in 2008, when Garth Turner released this book about the coming market crash, was $379,080. The average Toronto home price in 2020 was $929,660.
Not only did the market fail to crash, but it more than doubled by 2016.
I spent a lot of time in the early 2010’s writing about Garth Turner, but he became so irrelevant that I stopped.
What I did not know, however, was that he’s still active!
Did you know that?
Were you aware that Garth Turner is still lecturing his legion of greater fools about the impending market collapse?
I just read one of his blogs, where he’s patting himself on the back for being “right” about mortgage bond yields increasing, but, as with all his writings, fails to mention that his book and his opinions cost a slew of Canadians a lifetime of tax-free capital gains that they’ll never get back.
Here’s a comment that made me sick:
I don’t actually know anybody that’s been waiting a decade for the crash. These people are like urban legends.
We all assume that there are would-be buyers out there that have really, truly been sitting on the sidelines, waiting for the housing bubble to burst. But here’s an actual person, commenting on Garth Turner’s blog post, detailing his patience as it pertains to the “bubble burst.”
Can you imagine?
Think about this person, living in Toronto. Think about the average home price ten years ago, at $431,262. This year, we’ll probably pass $1,000,000.
Talk, talk, talk.
That’s all I’ve heard in the past seventeen years.
Talk about the crash. Talk about the bubble.
And the market keeps on moving.
Garth Turner was wrong. Surely there’s no question about that, and his predictions failed spectacularly.
But do you know what didn’t fail spectacularly?
His book sales:
This guy is an author. That’s who he is. That’s what he is. He’s an author.
He’s not a clairvoyant.
He’s nowhere near being qualified to give out real estate advice, as we can plainly see.
He’s a guy trying to find listeners, just like anybody else out there trying to make a living with a pen or a voice.
Not unlike this guy:
This book was released on March 21st, 2015.
“Surviving” for some people meant seeing their property values increase by 50%, but I digress…
Over, and over, and over, for the seventeen years I’ve been in the business, I’ve seen media, authors, economists, talking heads, magazines, and newspapers try to call the market crash.
Over, and over, and over, they’ve been wrong.
Here’s another all-time favourite:
“Now What?”
Um, I don’t know. Maybe hang on to that house because it’s now worth $2,000,000?
Many of you are reading this thinking, “So what? We’ve heard this from you before. What’s new?”
The newer readers to TRB are wondering, “How does looking into the past tell me anything about what’s going to happen in the future?”
Those would be fair lines of questioning, and I’ll be the first to admit that I’ve beat this horse to death and beyond over the last decade. But in the spirit of fairness, is there anything more unfair than “experts” calling for a market crash for a decade, only to continue calling for it in 2021 after prices have more than doubled?
There is no “crash” coming. It won’t happen. I’ve been saying this for more than a decade.
Toronto Realty Blog on February 18th, 2008: “Is the Market In Trouble?”
I wrote that thirteen years ago.
Tell me if this sounds familiar:
Pick up a newspaper or business magazine these days, and it seems that every single editorial or opinion piece is predicting a meltdown of the real estate market.
It’s almost as if the media wants this to happen.
I don’t tell them how to write stories, print newspapers, and report on world happenings, so why are they telling the general public about the future of the real estate market?
Thirteen years ago.
I would encourage anybody who feels, in 2021, that we’re “on the verge of a market collapse,” to consider how long thirteen years is, and for how long people have been predicting this crash that never came.
If I were that reader of Garth Turner’s blog who commented that he’s been “sitting on the sidelines for ten years,” I would be laying on the ground in the fetal position right now. Everybody around that guy has gotten shit-rich from simply buying real estate, and many of those people are far from rocket scientists. Consider a couple of dummies who bought a condo in 2016 for $400,000, sold it in 2019 for $650,000, and used that $250,000 tax-free capital gain as a down payment on a $1,100,000 house.
Meanwhile, the “smart” people are on the sidelines. Waiting.
They’re looking at stats, charts, graphs; reading The Economist, talking to their financial advisor from TD, listening to podcasts from experts, attending seminars, and doing everything in their power to avoid buying.
This is a confirmation bias at play, if I’ve ever seen one.
You want the market to crash, so you look for reasons why it could. Then you convince yourself that these facts are undeniable, and you use the resume of those who share your vision to support their opinions.
How could a lead economist for a Big-5 bank be wrong?
What about UBS? Those guys are smart, right? They put out a “Global Bubble Index” every year and Toronto is always listed.
I have a laundry list of these. Lemme pull one up…………..ah, here, from 2017.
Alright, so I’ve established that people have been calling for the Toronto market to crash for almost two decades, and I’ve established that there have been no shortage of experts that have called this incorrectly for just as long. But what about moving forward?
Here it is, and you all want to hear me say this so you can pick it apart: the Toronto real estate market is not going to crash.
Not going to crash. Not going to drop. Not going to “correct.” Oh, there’s a word I hate, since it infers that current prices are incorrect. Prices have been incorrect for a long, long time…
So why do I think this? Or how can the market continue to increase?
First and foremost, let me admit that I don’t believe this is “healthy.” A reader asked this last week, and I was asked this on BNN to which I said, point-blank, “There’s nothing healthy about this.” But this market not being healthy, and this market crashing, are two different things. Our definition of “healthy” may change. Our style of living may too, with a larger percentage of individuals renting versus owning, or commuting, or working from home. A decade from now, we may look back at “healthy” as a synonym for “ideal,” as we accept the Toronto real estate market for what it is, rather than what we wish it were.
I’m not a market cheerleader. I’m not in denial. I’m a realist. And I see what I have always seen in this market: a massive deficit between supply and demand.
For years, the government has tried to decrease demand. The CMHC has made a dozen or more major changes to the mortgage industry, since the time when you could purchase a house with 107% financing, to say the least.
What about building infrastructure that could reshape the demand curve? Is the government building any high-speed rails at the moment that would allow people working in Toronto to live in Niagara Falls and get to work in 30-minutes?
Hmmm…
But what about supply? What has the government done to increase supply?
Some people out there think that a tax on capital gains is the “cure” to our market woes, but that would do absolutely nothing to decrease demand, increase supply, or help with affordability.
We’re not building on the Greenbelt. We’re not incentivizing home builders. We’re not constructing low-income or subsidized housing. What is the government doing to help with the supply problem?
Point to low interest rates as a reason why demand is high, and I’ll point my finger out right alongside yours. There’s no question that low interest rates are helping both demand and affordability, but do any among you think we’ll see a 5-year, fixed-rate above 5% in the next five years?
Supply is low and will remain low.
Demand is high and will remain high.
And in those two sentences, I give you my reasoning for why the market is where it is, and why it will stay here. You don’t need a top economist to write a book on this. You just need to simplify the analysis and look at the very most basic tenents of what makes a market.
In the end, it’s not my job to convince anybody that the market will go up, down, or sideways. I’m a real estate broker. I work with real estate buyers and sellers as an occupation, and I write a blog in part as a hobby and in part as a way to attract clientele. Whether or not a TRB reader agrees with me or not, is none of my concern.
But I will say this, if I may be so bold, you can call me a biased bull or call me a market cheerleader, but there’s one thing you can’t call me: wrong.
Since that 2008 blog post, I’ve written countless entries lamenting the “bubble” talk, all the while, saying it wouldn’t happen. In that time, hundreds of notable economists, financial pundits, columnists, banks, and even members of the CMHC have predicted a crash or “correction,” and it’s never happened.
In reading the TRB comments, it seems as though there’s a 60/40 balance of bulls/bears on here, maybe more. Some of those who are lapping up that “froth at the top” are already in the market, so whether there’s a correction or not, it doesn’t affect them. But for those of you who are like Garth Turner’s reader and are waiting on the sidelines, it’s not my place to tell you whether to buy or not. But I will tell you one thing, and it’s an unsolicited piece of advice: if you don’t have a better reason for believing there’s going to be a market correction than “it just has to,” then you have a problem on your hands.
At some point in 2021, we’ll see one, two, or three down months. The bears will celebrate, and when the TRREB average home price drops 5% in a month, they’ll get on their dancing shoes. But where will prices be next year, and the year after?
That’s rhetorical.
And if you really need it answered, just read any of the blogs I’ve written dating back to June of 2007…
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