Skip to main content
The Globe and Mail
Support Quality Journalism
The Globe and Mail
First Access to Latest
Investment News
Collection of curated
e-books and guides
Inform your decisions via
Globe Investor Tools
per week
for first 24 weeks

Enjoy unlimited digital access
Enjoy Unlimited Digital Access
Get full access to
Just $1.99 per week for the first 24 weeks
Just $1.99 per week for the first 24 weeks
var select={root:".js-sub-pencil",control:".js-sub-pencil-control",open:"o-sub-pencil--open",closed:"o-sub-pencil--closed"},dom={},allowExpand=!0;function pencilInit(o){var e=arguments.length>1&&void 0!==arguments[1]&&arguments[1];select.root=o,dom.root=document.querySelector(select.root),dom.root&&(dom.control=document.querySelector(select.control),dom.control.addEventListener("click",onToggleClicked),setPanelState(e),window.addEventListener("scroll",onWindowScroll),dom.root.removeAttribute("hidden"))}function isPanelOpen(){return dom.root.classList.contains(}function setPanelState(o){dom.root.classList[o?"add":"remove"](,dom.root.classList[o?"remove":"add"](select.closed),dom.control.setAttribute("aria-expanded",o)}function onToggleClicked(){var l=!isPanelOpen();setPanelState(l)}function onWindowScroll(){window.requestAnimationFrame(function() {var l=isPanelOpen(),n=0===(document.body.scrollTop||document.documentElement.scrollTop);n||l||!allowExpand?n&&l&&(allowExpand=!0,setPanelState(!1)):(allowExpand=!1,setPanelState(!0))});}pencilInit(".js-sub-pencil",!1); // via darwin-bg var slideIndex = 0; carousel(); function carousel() { var i; var x = document.getElementsByClassName("subs_valueprop"); for (i = 0; i < x.length; i++) { x[i].style.display = "none"; } slideIndex++; if (slideIndex> x.length) { slideIndex = 1; } x[slideIndex - 1].style.display = "block"; setTimeout(carousel, 2500); }

Queen's University professor John Andrew is as puzzled as any observer trying to interpret the dynamics in Toronto's real estate market.

Runaway house prices, he notes, are simply incongruent with stagnating sales.

"I've been perplexed about that for a couple of years."

Story continues below advertisement

Prof. Andrew is director of the Executive Seminars on Corporate and Investment Real Estate at Queen's. Among his teaching duties, he lectures in Queen's School of Business. A sudden burst of activity last month led to the strongest May on record, he notes, but the broader trend in Canada has been a gentle downturn.

Prof. Andrew expects the Toronto market to stabilize and settle down in July and August, as it so often does in the summer.

Looking out toward the fall and action in the bond market, he anticipates an uptick in bond yields, which in turn may lead to higher mortgage rates in Canada.

In May, Prof. Andrew suggests, the market in Toronto was playing catch-up after a slow start in the spring. Cool temperatures may have held back listings and discouraged buyers, he says.

When more listings suddenly sprouted in May, some of the pent-up demand was absorbed. Last week the Canadian Real Estate Association reported that sales across the country rose 5.9 per cent in May compared with April. The largest gains driving the national increase were in Greater Toronto, Calgary and Montreal.

Earlier this month the Toronto Real Estate Board said that the average selling price in the Greater Toronto Area jumped 8.3 per cent compared with May of 2013.

Prof. Andrew says the numbers are particularly startling in light of warnings last week from the Bank of Canada and the Organization for Economic Co-operation and Development.

Story continues below advertisement

Last week, the central bank said valuations are stretched, there is overbuilding in some parts of the country and indebtedness remains high. Those elements could lead to a correction, which in turn could hurt the overall Canadian economy, Bank of Canada Governor Stephen Poloz says.

Mr. Poloz told reporters he believes the risk of a housing market crash in Canada remains low.

Prof. Andrew says it will be particularly interesting whether the federal government heeds the OECD's cautions about the risk to the taxpayer in light of all the mortgage debt out there insured by the Canada Mortgage and Housing Corp.

In a report, the Paris-based OECD said, "regardless of whether or not a housing price bubble exists, very high household debt levels represent a major vulnerability."

The report noted, for example, that the mortgage insurance system, and Canada Mortgage and Housing Corp.'s dominant role in it, "concentrates a significant amount of risk in public finances."

"The Canadian taxpayer is bearing far too high a risk compared with lenders," Prof. Andrew says of the OECD's position.

Story continues below advertisement

To reduce growing taxpayer exposure, the OECD urges Ottawa to tighten mortgage insurance rules to cover only part of lenders' losses in case of defaults. Mortgage insurance pays the lender back in full if the homeowner defaults on the loan. The OECD suggests that taxpayers bear a large responsibility.

Prof. Andrew believes that if the federal government were to force banks to take on more responsibility, "it would immediately be passed on to consumers."

Such a change would discourage many potential buyers, he says.

"That could have a hugely chilling effect on the market."

Prof. Andrew says the federal government is in a tight spot. Increasing the minimum down payment required for mortage insurance would also serve to take some steam out of the market, but home builders are lobbying tremendously hard against such a move.

"I think they're terrified to increase the minimum down payment."

Story continues below advertisement

One worry, Prof. Andrew says, is that the "stress tests" banks perform to make sure a borrower can afford to continue to pay a mortgage at higher rates are not rigorous enough.

Looking back at historical interest rate levels, it's not at all far-fetched to imagine they could return to 7 or 8 per cent, he cautions.

"You don't have to go back very many years."

His "biggest fear," he adds, is that rates eventually rise – prompting a lot of homeowners to try to sell at the same time as they watch the value of their asset decline.

If you're in your house for the long haul, it doesn't matter if rates rise or values fall, the professor points out – unless the mortgage comes up for renewal at a rate the owner can't afford or doesn't want to pay.

"They'll scale back in 100 ways to not lose their home."

Story continues below advertisement

That risk is highest in the condo market, he adds, because those owners tend to be investors.

"If it's an investment, then it's easy to cut and run."

As the average selling price approaches the $1-million mark for a detached house in Toronto's 416 area code, Prof. Andrew says the milestone – if it is reached – won't have a big impact on the market.

If there is a flurry of attention, that may draw some foreign investment, he says, but over all he expects the impact would be small.

"Vancouver passed that a while ago. We don't want to overstate the psychology because it had little impact in Vancouver."

Prof. Andrew adds that he doesn't know if prices will climb that high or not. It's possible the market will taper off during the summer. Higher mortgage rates in the fall could further temper demand.

Story continues below advertisement

If prices in the city do pass that threshold, they could also fall back, he cautions.

"It's really just about mortgage rates."

Prof. Andrew says many buyers get sucked in emotionally when buying a house and often begin looking for ways to tick more of the boxes on their "wish list."

Some borrow money from parents; others dip into their retirement savings plans, which Prof. Andrew advises against.

"Everybody spends more than they ever think they're going to spend."

Report an error Editorial code of conduct
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to If you want to write a letter to the editor, please forward to

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed.

Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies