Without a doubt, the Toronto area real estate market has seen incredible price appreciation over the past number of years.  It can be easy to see our strong price growth in the GTA and think current prices are unreasonable.

Remember that what used to appear expensive now feels cheap.  Here’s a reminder of what things used to cost in the GTA and where prices could be heading.

For this review of price appreciation, we’ve chosen the holy grail of real estate, detached homes.  We’ve looked at what they cost now across the GTA and what they used to cost in five-year spans going back a total of twenty years.  Here’s what we found.

Detached Houses Cost at Least 4x More

Here’s what a detached house cost back in November, 2001 and what it costs now in November, 2021.

You can the growth over the past twenty years in five year increments in the chart below.

It is absolutely remarkable that over a twenty-year period, the average price for a detached home went up by 436% across the GTA.

(Big) Winners and (Barely) Losers

The highest percentage price appreciation was in Simcoe, which went up 516% in twenty years.  That means the average price quintupled since 2001.

The lowest percentage price appreciation was in Toronto, which went up 399% in twenty years.  Toronto didn’t quite quadruple twenty years, but since they started out with the highest average sale price for a detached home, we won’t feel too bad for Torontonians.

The biggest dollar gain in the past twenty years was in Halton, where the average price went up $1,456,380 over the past two decades, now at $1.766M.

The “worst” dollar gain took place in Dufferin, where the average price went up $775,014 in the past twenty years, now at $967K.  It’s still a 4x increase in average price so the good folks of Dufferin shouldn’t be too upset.

Looking Forward

Our crystal ball is occasionally foggy, so we will start off by saying that past performance is no indicator of future performance.

We know what has changed over time but there is no guarantee the same thing will occur over the next twenty years.  In fact, it seems highly unlikely that the exact same growth will continue.  It might be more, it might be less, it might stagnate, or it might even drop.

We looked at two growth scenarios to see where real estate might end up in the next five years.

The first is if we continued to see the same price appreciation as we’ve seen in the past five years.

• If Dufferin goes up by the same 90% we saw since 2016, that would mean up $866K to an average price for a detached home of $1.83M.
• If Durham goes up by the same 74% we saw since 2016, that would mean up $819K to an average price for a detached home of $1.92M.
• If Halton goes up by the same 61% we saw since 2016, that would mean up $1.07M to an average price for a detached home of $2.83M.
• If Peel goes up by the same 74% we saw since 2016, that would mean up $1.10 M to an average price for a detached home of $2.58M.
• If Simcoe goes up by the same 89% we saw since 2016, that would mean up $1.04M to an average price for a detached home of $2.23M.
• If Toronto goes up by the same 34% we saw since 2016, that would mean up $621K to an average price for a detached home of $2.42M.
• If York goes up by the same 41% we saw since 2016, that would mean up $729K to an average price for a detached home of $2.49M.

Looking at the above, it can seem like those numbers are ridiculous.  There is definitely an unrealistic element to areas such as Dufferin continuing to see the same 90% price increase over the next five years.  As well, it seems difficult to believe that Toronto could end up with the 4th highest prices in the GTA, after Halton, Peel and York.

That being said, while it is true that forecasting an average price for a detached home in Dufferin to hit $1.8M feels wildly optimistic, five years ago, who would have believed that their average price of $510K would become $967K by now?

Let’s move from what has happened to what is more likely to happen.  The second growth scenario has us using a more modest 7% annual appreciation.

While that may seem low based on our recent price appreciation, we have seen some long-term studies (Jorda, 2017, which covered 1870 to 2015 global housing returns) that show when you take into account boom and bust cycles, property appreciation averages out to about 7% per year.  Remember that an asset that appreciates at 10% per year doubles in value after seven years.  Here’s what that 7% average appreciation means to average house prices in five years.

• Dufferin goes up $389K to a new average for a detached home of $1.35M.
• Durham goes up $446K to a new average for a detached home of $1.55M.
• Halton goes up $711K to a new average for a detached home of $2.47M.
• Peel goes up $599K to a new average for a detached home of $2.08M.
• Simcoe goes up $475K to a new average for a detached home of $1.65M.
• Toronto goes up $727K to a new average for a detached home of $2.53M.
• York goes up $710K to a new average for a detached home of $2.47M.

You may scoff at the idea that the average detached house price in Peel will be more than $2M in five years, but remember it went from $855K to $1.488M in the last five-year period.

While it is difficult to predict exactly what will happen with detached home prices, the above historical data and forecasts show some staggering numbers.

Real estate prices have gone up over time, as have almost all costs.  If you’re betting that now is the time when real estate stops appreciating or even collapses in value, it may be a riskier bet than you think.

Our recommendation to clients is to focus on fundamental values and look for properties that are well located and will remain appealing to homeowners.  If you buy a home like that, odds are good that five years from now, you’ll be very happy you did.  If that sounds appealing, get in touch.