Fresh data collected by a Toronto-based brokerage indicated that of all the suggested factors pushing the city’s red-hot home price increases, it is speculation that is chiefly responsible for driving the area’s real estate into “bubble territory”.
In its latest report, Realosophy Realty Inc. noted that the increased popularity of speculation heralded a transformation in market psychology in Toronto and the surrounding locales.
“When we began to see investors act on the assumption that the price of houses will continue to rise indefinitely, we started shifting from a market driven by an investor’s mindset to a speculator’s mindset. This is one of the big red flags that economists point to in terms of housing bubbles,” Realosophy president and broker John Pasalis wrote, as quoted by The Globe and Mail.
He noted that the clearest example of this phenomenon can be found in the Durham Region, and in particular Ajax, Oshawa, and Whitby. The area has seen demand increase by more than 400 per cent in just roughly 4 years.
Pasalis added that these developments will continue to price regular buyers out of the market, and that the time is ripe for more decisive government action.
However, Bloomberg markets analyst Theophilos Argitis argued last month that speculators might prove immune to any federal-level moves to restrict their activity.
“If speculators are the cause of Toronto’s stratospheric home-price gains, it makes it difficult for the federal government to intervene, since its primary tool is mortgage insurance rules that don’t apply as much to investors,” Argitis explained.
“One possibility may be to clamp down on the country’s unregulated private mortgage industry -- so-called shadow banking.”
Restricting foreign investment might also yield results, Argitis said. So far, though, the federal government has not demonstrated a willingness to implement such a move.
“In fact, the only place where government steps to rein in prices seems to have worked has been in British Columbia, which introduced a 15 percent tax on foreign buyers in August.”
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