Will Toronto Real Estate Correct?

U.S. Interest rates Increase  

Just today the FED in the U.S. have decided to increased interest rates another 0.25% and for  some reason the stock market decided to rally along with oil, gold and other precious metals.  I guess this was due to the fact that the economy appears to be stronger and inflation targets have been sustained  hence rates have afford to increase   Housing in the U.S. remains steady with increases in home prices across many states.  We will see how this plays out in the next month or so, one would think as interest rates approach the FED`s 1% target from their historical lows this would drive a correction in equities and other securities that have increased substantially over the past decade.

Toronto Housing Market

Toronto on the other hand has seen record price increases in the housing market.  Over 21% price increases year over year for the month of February.  With the foreign tax imposed on real estate in Vancouver it appears as Toronto prices will further increase in 2017.  Vancouver on the other hand has experienced a drop in sales volume and prices as well.    http://www.bnn.ca/real-estate/video/why-vancouver-home-prices-are-dropping~934970

As an accounting & advisory firm based in Toronto, we have seen a variety of different investors and business owners in the development sector profit from the real estate run up in the past 10 years.  If you have driven into the city recently you will probably notice you cannot see the ACC or Roger’s center’s anymore as the skyline is flooded with several newly completed condos, and a lot more new developments in progress.

Rent or Buy

There are many opinions on whether to rent or buy a home, and the decision varies for everyone.  With affordability a major issue for many families in and around the GTA, the cost of buying has greatly outweighed the cost or rent.  As a chartered accountant, it`s not hard to calculate whether to rent or buy in the city, it comes to affordability and whether you are getting a fair price for the property you decide to call home.  If you put down the traditional 20% down on your principle residence and the house can be carried if you had to rent it out then you are probably getting a good deal, otherwise you are overpaying.  The problem in Toronto is that most people are overpaying for real estate in 2017.  We also have noticed that a lot of the condo purchase`s downtown have been position by affluent facilities’ as investment rental properties.  This begs the question who is really buying real estate downtown?  If  a large portion of condos are owned by investors for speculative gains what is to happen to real estate prices when investors want to exit their positions to realize their gains?  Unless there is demand to compensate from affluent baby boomers looking for exits as part of retirement, prices will have to come down.

For those who rent, we have also seen a sharp increase in rents in the downtown core, because there is a higher demand to live in the city center where there can be greater job opportunities.  But you will pay premium rates, we have seen rent starting as high as $2,000 a month for a 600 sq. foot one bedroom condo.

Single family detached homes in Toronto

This is another discussion all together…..simply put there is not enough supply in the GTA and this has led to bidding wars on homes that used to cost $500,000 5 years ago being sold for $1.5 Million in 2016-17.

Canadian Government`s Take on Real Estate

We have seen the Canadian government put a 15% tax on foreign buyers in Vancouver, and they are now looking into the impact this would have if they were to impose a similar tax in Toronto.  For more on a potential foreign buyer tax in Toronto please visit


CRA to review tax returns in 2016 for unreported business income or capital gains

The Canada Revenue Agency has also made a recent change in personal tax filing requirements to have tax payers submit their principle residence election form as part of their T1 return starting for fiscal 2016.  This was not a requirement in the past; you simply needed to have the election form on hand for your personal records only.  This leads us to believe that the CRA wants to gather information on individuals that have sold homes in 2016 and assess which sells had intent to flip or profit from and treat these gains as either business income or capital gains.

What will 2017 have in store for real estate in Toronto?

I think we are due for correction, but this is just my opinion however no one really knows.   We are advising to be prudent when purchasing real estate as with any investment.

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