Is Toronto In A Housing Bubble? (Bursting The UBS Real Estate Bubble Index!) - YouTube

Hi everyone welcome to our channel where we help  your real estate investments work harder for you  

I'm Samantha from Elevate realty in Toronto  in the past weeks many news outlets have been  

reporting that Toronto is in bubble territory so  at first glance this can seem pretty scary because  

everyone's talking about this but when you  look into this a little bit more you'll see  

that they're all really just pointing to the same  source which is a report by Swiss investment bank  

UBS so whether Toronto really is in a bubble comes  down to whether UBS' bubble index is accurate  

now without even diving into their analysis it  seems a bit off that UBS is saying that Toronto  

is the world's third biggest real estate bubble  only behind Munich and Frankfurt they're basically  

saying we're in a bigger bubble compared to other  cities like Hong Kong New York and LA which to me  

seems pretty shocking because of this I decided  to really dig into their analysis to see what's  

going on so in this video i'll explain how UBS  calculates their bubble index and more importantly  

why it doesn't work well for Toronto at the end  of the day if the UBS analysis isn't accurate then  

you can't say Toronto is in a real estate bubble  before I continue please remember to subscribe  

and hit the notification bell so you don't miss  other real estate investing videos like this from  

our Elevate team UBS's bubble index is calculated  by looking at five key factors right here and when  

they're calculating these factors for Toronto  they're comparing how Toronto is right now  

to how Toronto was like in the past out of  this list of five factors the first two didn't  

raise any red flags so i'll just breeze through  them before I zoom into the three other factors  

number one our construction 2 GDP ratio is very  underwhelming and doesn't sound any housing  

bubble alarms from UBS Toronto's been in a housing  supply shortage for a while so even though we're  

seeing more housing supply come onto the market  now we're essentially still playing catch-up to  

our growth so this isn't a big concern our  city's strong growth means a growing GDP  

so even though our property prices and effectively  mortgages continue to go up it's actually in line  

with our GDP growth so UBS doesn't see  a real estate bubble here either factors  

three and four have to do with price and I have  a similar argument for both i'll go over each  

one separately and i'll start with the price  to income ratio first UBS is raising a first  

red flag for Toronto because they're seeing  Toronto's price to income ratio get higher  

and higher over time now i'm just going to show  you two charts the left one is New York's price  

to income ratio over time and the right one is  Toronto's price to income ratio over time as well  

as you can see New York's ratio does fluctuate  around an average whereas Toronto's ratio has been  

heading upwards since the late 90s I also  want to let you know that these ratios aren't  

absolute values but rather they are standardized  stacked against what's happened in the past so far  

so say if our price to income ratio is higher  compared to the past the standardized value will  

raise a red flag when you think about this because  we're reaching new highs every year compared  

to historical numbers this ratio must have been  calling a bubble in Toronto for the past 10 years  

but of course we know that Toronto's real estate  has been growing steadily for the past 10 years  

so just from this alone I can say that this  indicator hasn't been very reliable for Toronto so  

what's wrong with using this as a bubble indicator  well if a city wasn't growing then it would make  

sense to compare its current price to income  ratio to how it's been doing in the past but  

i'm proud to say that Toronto's seen a pretty  big transformation over the past 20 years in the  

late 90s we were more of a typical North American  middle class city but over time we've grown a lot  

and we're moving towards becoming a world-class  city we are a national hub for both government  

and finance sectors in Canada we're one of the  biggest tech talent markets in North America and  

recently we've become the fastest growing urban  centre in North America as well so since Toronto's  

moved to a higher class compared to before  it's a bit meaningless to still use our past  

as a comparison metric you can also think about  it this way let's say we're buying movie tickets  

over time movie tickets do increase and you can  use the price to income ratio to see if tickets  

are becoming overpriced but if you've been buying  regular tickets in the past and suddenly decide to  

ship to buying VIP tickets you know the ones where  you can reserve reclined seats and you can sip on  

wine while watching a movie then obviously the  price should increase so it doesn't make sense  

to compare the VIP price to what you've  been paying in the past for regular seats  

a more reasonable comparison is to either use  a price history for VIP seats if you have this  

or if you don't you would find comparables based  on VIP tickets elsewhere in a similar way because  

Toronto is upgraded in class instead of comparing  ourselves to our historical price to income ratio  

it's more accurate to compare the price to  income ratio of Toronto to other world-class  

cities instead and when you do this you'll see  that Toronto's ratio is pretty average versus  

other global cities this means we're still very  affordable on a global scale and because our world  

status is still growing we're probably going to  see more hikes in property price as well the next  

factor is also based on price and for this one UBS  is giving Toronto a red flag because our price to  

rent ratio is getting higher and higher so I'd  have to use the same reasoning here Toronto is  

moving up in class you can see this because the  price to rent ratio has been going up since the  

late 90s and we've yet to see a bubble on a global  scale Toronto also sits in the middle in terms  

of the price to rent ratios so nothing sticks  out of the ordinary against other urban centres  

now let's think about this a little bit  more if you're choosing a city to move to  

Toronto would most likely be your top choice since  it's a world-class city it continues to grow plus  

it's still affordable on a global scale if you're  an investor choosing a city to invest in it's  

also a top choice there's high appreciation plus  rent yields are also very attractive versus other  

global cities if you look at the price to rent  chart you can see that the price is levelled in  

2018 to 2019 this was when the government imposed  a new non-resident speculation tax for the very  

reason to slow down real estate investments  outside of Canada but even with the new  

speculation tax Toronto is still very attractive  and demand isn't going away and you can see prices  

resuming its upward trend the final factor that  Toronto gets a big red flag for is the increasing  

city to country price ratio what they're seeing is  Toronto's prices are rising a lot faster than the  

rest of the country and i'm guessing the reason  it's a red flag is because it's assuming that the  

economies of different parts of a country are  somewhat similar and if that's the case people  

will move out of Toronto if it gets too expensive  but this assumption isn't accurate in Canada  

the jobs are in Toronto and that's why people live  here just because real estate is a lot cheaper say  

in Calgary people aren't just going to go move  to Calgary because the same jobs aren't there  

so I'll have to say that the city to country ratio  isn't accurate either out of the five factors UBS  

uses two of the factors don't indicate a bubble in  Toronto and unfortunately you can't use the other  

three factors either because the assumptions  they're based on aren't valid this means UBS's  

index isn't accurate for Toronto which also means  you can't say Toronto is in a real estate bubble  

what I can tell you is that COVID is affecting  Toronto's real estate in the short term we saw  

the real estate market freeze and early COVID  because buyers and sellers were in lockdown  

and immigration has slowed down which is  affecting both rental and buyer demand especially  

in the condo space right now people want  more space so we're seeing even more condo  

supply flood the market but this is benefiting the  freehold space and freeholds are holding up very  

well with strong supports ultimately Toronto's  growing world-class status and its affordability  

on a global scale point to strength in Toronto's  real estate prices and this will just grow  

as COVID makes a full recovery we're in the middle  of a second wave in Toronto so there's starting to  

be more fear again if things pan out similar to  what happened in the beginning of the first wave  

we might see freeholds get a little bit  less heated this can give you another  

window of opportunity to get into a detached or  semi-detached property at five to ten percent  

discount compared to a normal market if this  sounds good to you contact us and we'd be happy  

to show you the best properties on the market you  can reach us by going to the link i'll put in the  

description below finally if you like this video  please remember to give us a thumbs up and help us  

out by sharing it on your social media and tag  us @elevaterealtyca I wish you all the best in  

your real estate investing journey thanks so much  for watching and i'll see you in the next video!