Is Mississauga at Risk of a Housing Crash?
In the winter of 2017, it wasn't uncommon to hear realtors and prospective homeowners proclaim that the white hot real estate market was "insane." Detached house prices soared past $1 million and small, ho-hum, dated homes sold for tens of thousands of dollars over asking.
All levels of government stepped in. The federal government imposed a stress test, the former Ontario government implemented a tax on foreign buyers and speculators and the City of Mississauga worked to finetune its plan to incentivize the creation of more affordable housing for middle-income earners.
But while the market has cooled in the wake of major policy decisions, prices are still high and many are wondering if a crash is on the horizon.
At this point, experts are divided—but one local realtor thinks a correction could be coming to parts of Mississauga in the not-too-distant future.
But he’s not worried about a crash.
"Right now, the only people seeing the biggest [detached house price] drops are people in Richmond Hill, King City and Woodbridge. Richmond Hill properties saw drops of up to $800,000 for detached homes. Those people [in luxury home markets] get hit the hardest in times like this," says Nikhil Oberoi, a sales representative with Cloud Realty.
Oberoi, who frequently helps clients interested in buying and selling properties in the City Centre area surrounding Square One, says that the area—which could be home to 46 new towers over the next 10 years should proposed projects be approved—could see something of a correction.
But he says that it's important to remind people that a correction is not a crash.
"In 2013 and 2014, I was researching City Centre condos and I was seeing that year over year, there was little to no movement at all in prices. Investors were getting 2 to 3 per cent a year, maybe more in premier buildings," Oberoi says.
Five years ago, Square One-area condos cost about $275,000. Now, Oberoi says it's difficult to find a condo under $375,000 in the neighbourhood.
While the wild increase in real estate values has dominated headlines for years, there's still some disagreement over whether or not Canada is dealing with a housing bubble. While few are predicting an out-and-out crash similar to the one the U.S. experienced in 2008, some experts are concerned that debt-strapped Canadians grappling with a housing market defined by over-inflated prices driven by persistently low interest rates and serious supply and demand imbalances are in for an unfortunate surprise.
In fact, the Financial Post recently shared concerning data from Bloomberg's housing bubble dashboard.
Bloomberg found that in Canada and New Zealand, the cost of housing has far outstripped wages. Bloomberg suggests that, even with policy makers working to cool both markets, both countries risk the creation of housing bubbles—something some experts say is unlikely because there's no indication that house prices will drop at a time when inventory is not keeping pace with demand.
That said, Oberoi says that some growth in the City Centre condo market is unsustainable long-term.
He says that a condo appreciating in value from $220,000 to $250,000 over time is normal, and that the more recent spikes are quite striking.
"A hundred thousand dollars in growth is a lot, but houses that were bought for $300,000 are now worth $950,000. Home values are going up $100,000 and more in just five years. This whole spike started when interest rates were low and the market was attractive to buyers outside of Canada," he says.
"When interest rates went down, people started looking to buy. The inventory didn't change but the number of buyers did. Then the bidding wars started. In 2016 and 2017, we hit the peak points and then saw everything slow down in 2018 after then-premier Kathleen Wynne announced the Fair Housing Plan (FHP)."
Oberoi says he listed a condo for $520,000 in 2016 and was shocked by the response.
"I had 14 offers in 10 hours on the property. When buyers see they're competing with 14 buyers, they know they need to pay over market price to get it. I had two offers for $780,000 and $770,000. People with similar units thought, 'well, my unit should cost $750,000 too'. Those prices happened because someone wanted a house and had the money for it."
"What people were paying didn't reflect the value—it reflected the fact that they wanted to beat the other buyers."
In time, the market slowly responded to the stress test and FHP (both of which spooked prospective buyers and investors) and prices began to inch downwards.
"The government announcements came and interest rates trickled back up, but people who were looking to sell still listed at the prices houses were selling for before. Because they were sitting on the market for a while, people started to lower their prices. The market was in the correction process," Oberoi says.
"What goes up must come down. The higher the spike, the deeper the fall. The FHP started a correction process that took investors out because they didn't want to pay 15 per cent over and above what they were already spending. The public noticed that houses were sitting for 30 days and they thought it was a crash, but the market just had to correct itself."
Oberoi says the If FHP didn't happen, the market might have reached a point where it was overinflated, increasing the odds of a crash.
"People should be happy about the correction. You can't have two years of 30 per cent appreciation and think that that's sustainable," he says.
Oberoi doesn't think a major crash is imminent in Mississauga due to the unique nature of housing itself.
"One factor to take into consideration is that this is still a home for a majority of people versus a stock. The fact that it's correcting itself is fine, but I don't think there's going to be deep one because everyone still needs a roof over their heads. Houses and condos will never stop selling because people need places to live. I don't see a crash happening in Toronto or Mississauga, but the market will continue to correct itself."
While it's common for worried homeowners to conflate minor corrections with crashes, homeowners should take comfort in slow year-over-year price growth.
"Even if we go from 30 per cent year-over-year growth to 10 per cent year-over-year, that's not a crash."
Oberoi also says there are some key differences between the U.S. market in 2008 and the Canadian housing market now, and that Canadian banks have traditionally exercised more caution by refraining from giving out unsustainable loans.
He also said the government has never indicated that any dramatic interest increases are on the horizon.
Oberoi speculates that once Canadian markets create more housing, prices will plateau.
"Canada is really expanding in terms of population and jobs. We have an inventory issue that's keeping prices up, but as you continue to see more condos and houses being built, the inventory issue will dissipate, but there won't be a crash, but more of a plateau."
Oberoi said prices might return to climbing just five per cent year-over-year.
"Real estate is never a short term investment. People who buy and flip in a year will generally not make a ton unless they get very lucky with timing. People should buy with the mentality that it's a long-term investment. I try to steer people from buying and flipping because it's a misconception. Buy, hold and then flip—that's what real estate is for."
Ultimately, he doesn't think people who end up selling for less than they would have in hotter years should worry.
"If people understand that they won't get the prices they were getting when inventory was low and buying was high, that's fine. The crash happens when the value drops below real value. Correction happens when an overvalued home sells for closer to what it's worth. A bank might only give a buyer what they think the home is worth too, which shows that people have been overpaying just to be competitive."
He also said that buyers who spent $30,000 or more over-asking aren't as likely to recoup their investment.
"[Overpaying] might not be a bad decision if you keep your property for 20 years, but if you spend $30,000 over and sell in two years, you'll likely lose money.
As for the City Centre condo market in particular, Oberoi believes the high prices might also correct as more inventory hits the market.
"City Centre really jumped and the number of new buildings coming into the area and issues with high rental rates, I don't think it's sustainable. I don't think people can support this and that's why families of four are living in one-bedroom units," he says.
"With more inventory, there will be a little bit of drop, I believe. I think it will drop a little bit, but after that, I feel like City Centre condo prices will go up five to seven per cent year-over-year for the foreseeable future. Toronto is the next New York City and I think it could become a place where only the rich own real estate."
Oberoi sees Mississauga's value and attractiveness climbing as the GTA becomes more of a global destination.
"The Parklawn area in Etobicoke is developing, the City Centre area is developing. It's near Square One and Sheridan and UTM. 2020 and 2021 will be interesting years, and if people see a drop, they shouldn't be alarmed. City Centre will have to figure itself out, but then it will continue to rise. A lot of immigrants are attracted to Mississauga because it's very diverse," he says.
So, what should people who own in City Centre do?
"If you want to sell, now might be a good time. If you don't need to sell and you want to wait it out, you'll benefit a lot. Mississauga will be the Brooklyn to Toronto's NYC."