The Real Estate Beat

The condo boom in Ontario could prove to be a risk to the country’s current economy.

The NYC based ratings agency Fitch Ratings, who conducted the study considers home prices in Ontario to be 25% too high. This percentage is slightly above it’s estimate for Canada’s housing market as a whole, in 2014 it was around 20% overvalued.

There are more than 80,000 condo units under construction across Ontario, 50% high then just four years ago, primarily in the GTA. With the surge of an increase in supply, condo prices have remained flat across Ontario.

As a large number of units become available, prices will soften this could reverberate through the Canadian economy. A reduction in cost would reduce the incentive to build up more units – which could hit employment in the construction sector that has been on the rise by continuity in terms of the price growth.

The housing market in Canada is closely watched and scrutinized by global observers. Many argue that in all actuality if a price is paid for a product over and over – then that product is valued by the market at that price. Just like the old saying – ‘ A house is always worth what someone is willing to pay for it’. The Economist, recently pegged Canada among the world’s most overvalued housing markets, quoting them at 35% too high.

The International Monetary Fund has also flagged rising levels of unmanageable household debt, as well as uninsured mortgages, which is a serious risk to Canada’s overall economy.

In a nutshell, Toronto’s economy is somewhat more diversified but a large part of Toronto’s economy is based on housing and sales related to housing.