Real estate prices across the United States and Canada are soaring at record levels, as global demand for homes and apartments continues to soar.
While there is no clear reason for the surge, many analysts are predicting a bubble that will pop in the coming years, even as the U.S. Federal Reserve continues to pump trillions of dollars into the global economy.
“This is a real bubble,” said Michael Mancuso, head of the realtor-research firm RealGrowthSource.com.
“I would say that there’s a chance that it’s going to burst and it will be pretty hard to stop it.”
Here’s what you need to know about the real-estate bubble.
The U.K.-based real estate agent Zillow estimates the average price of a house in Toronto will hit $1.3 million in the first quarter of 2018, according to a report released by the realty firm.
In Calgary, prices are expected to jump from $1 million to $1,600 a square foot, while Vancouver’s condo market is expected to hit a record $1 billion.
“The house market in Vancouver is at an all-time high,” said Zillows chief economist Richard Zwilling.
“There’s more people, the economy is strong, and there are more condos being built.”
Why are prices rising?
The rapid pace of house construction in the U, Canada, and the United Kingdom, as well as rising home prices in many European countries, has fuelled a boom in the world’s largest economy, according the Economist Intelligence Unit.
“It’s a very, very strong market,” said Mark Zandi, chief economist at Moody’s Analytics.
“But the market is not going to go into a free fall.”
The U, China and Australia are the major buyers of Canadian real estate.
In Britain, the country’s central bank has cut interest rates for the first time in four years, prompting a surge in property purchases, while in China, the benchmark Shanghai Composite Index rose more than 5 per cent in the second quarter.
Will the bubble burst?
It’s not yet clear what the exact impact of the U., China and South Korea’s interest rate cuts will be, according BMO Capital Markets’ economist.
However, if the U of C, China or South Korea start hiking rates, it could trigger a sell-off in the market, he said.
Where to start?
Investors in Toronto and Calgary, which has a relatively large number of high-end condo towers, are starting to buy into the bubble.
The average sale price in Toronto was $1m in the third quarter of 2017, according an analysis by brokerage CoreLogic.
In Alberta, sales rose 1.7 per cent last year, according BCBG Real Estate Group.
“That’s a significant jump from the year before,” said Mancuseo.
“They’re definitely going to have a very good year.”
What do you need in a home?
Real estate agents are increasingly calling for a mix of condo and detached homes, with some asking prices in excess of $1-million.
However, many buyers have also been turning to detached houses, which typically come with a sliding scale that includes amenities like a swimming pool, gym, sauna, kitchen, laundry facilities and more.
“People want to live in an area with a lot of natural beauty and amenities,” said John Pomerantz, president of Pomerantz Property Group in Toronto.
Can I buy in Toronto?
You can buy your home in Toronto if: you live in one of the city’s 24 municipalities, or have an existing house in the city, and can prove you need the extra space.
You also need to live and work in the Toronto area.
In order to buy a house there, you’ll need to pay the assessed value (AVD) for the house in a municipality.
You must also prove you can afford the mortgage payment on your current home.
For condos, you must prove that you can live in your home for an additional five years and pay off the mortgage on your existing home.
You will also need a mortgage in the municipality where you want to buy the home.
But the buyer may also be able to get an exemption from that requirement, as long as the house is listed for sale in a specific municipality.
You can also apply for an exemption, but you will have to pay a $250 fee and submit a $1 lakh deposit.
You can also get an extension to the mortgage, which will reduce your payments.
How much will I pay for my home?
Depending on where you live, you may be able pay less than $1M for your home, but there’s no guarantee.
Pomerantz said it’s important to be realistic.
“You can get a lot more money for your condo than you can for your