// REAL ESTATE CONFIDENTIAL //
Chris Kapches, President & CEO of Chestnut Park Real Estate Limited, Brokerage, is a lawyer with an extensive career working within real estate organizations. Chris has served as Executive VP for the Toronto Real Estate Board (TREB), as well as roles on numerous TREB committees. Chris has been the Chairman of the Real Estate Council of Ontario’s Discipline and Appeals Committee for more than fifteen years.
Do House Prices Always Go Up? House prices are driven by a number of economic factors. The two most important are mortgage interest rates and household income.
As long as buyers can pay more, which they were able to between 2019 and mid-May 2021, prices will increase, as they did. There is no question that going forward demand will exceed supply, and that’s before immigration to the greater Toronto area resumes.
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he simple answer is both yes and no. This is not a facetious statement. It’s ambiguous because house prices are driven by a number of economic factors. The two most important are mortgage interest rates, and household income. The question related to rising home prices has been front and centre for some time but has become more urgent during the Covid-19 pandemic. This analysis is primarily focused on house prices in the Greater Toronto Area. Other factors have come to play in secondary markets which are beyond the scope of this article. During the pandemic, average home prices have skyrocketed. Until we dig deeper into the economic factors at play, this seems counterintuitive. So, what has happened during the pandemic to cause prices to increase to the stunning heights that they have reached?
To answer this question, it is necessary to look at what was happening in the housing market even before the pandemic. Two developments were occurring simultaneously. The housing shortage in the Greater Toronto Area had become critical, and
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mortgage interest rates were falling. The number of available properties for sale was simply not enough to meet demand. Consequently, there was always a buyer or two, or more, for every property that became available. But demand alone will have a marginal impact on rising prices. Households, for the most part, have fixed house-buying ability. Basically, this means they can only buy what they can afford, so no matter how many buyers there are for a property, its sale price will ultimately reach a number that aligns with the purchasing power of the buyers – not counting outliers who are funded by parents, relatives, trust accounts, or foreign buyers. Canada Mortgage and Housing Corporation indicates that the average household income for Toronto in 2019 was $109,480. Not taking into account the effect of the pandemic on wages, (many have lost jobs and household incomes have declined for some households), applying an annual three percent increase to household incomes since 2019, roughly the increase in the cost of living, the purchasing power of households should have increased and should have the effect of increasing average sale prices by a similar percentage.
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