Toronto Real Estate Prices Literally Look Like The Textbook Chart For Asset Bubbles

No, we won’t call Toronto real estate a bubble today. Usually we shy away from using the B-word entirely. Canadians tend to look at you like you’ve insulted their mother when you say it. Instead we’re going to discuss the phases of a real estate bubble, and let you make a decision for yourself. Understanding where you are in an asset cycle is a key difference between dumb luck, and calculated risk. It’s also what separates the rich from the middle class.

The Stages of An Asset Bubble

Cyclical behavior is usually broken down into 4 main stages, and lucky for us that’s what a prof did with bubbles. Today we’re going to use Dr. Jean-Paul Rodrigue’s infamous chart, which he published in 2008. During the Great Recession, this chart became legendary for capturing behavior, and viewed as a schedule for what’s next. It became popular again last year, as the crypto bubble inflated and popped. The four phases are stealth, awareness, mania, and the blow-off. Let’s touch on what’s typically observed during each period.

The Stealth Phase

The stealth phase is where you see smart money, and sometimes their buying seems a little crazy. This is when the general public couldn’t care less about buying the asset. Usually because it’s during a recession, or in such infancy it attracts no attention. Concord Pacific buying a sixth of downtown Toronto in 1996 is one of the best examples of this in my opinion. People thought they were crazy, because who wants to live in a downtown condo after what happened in 1990?

Prices are mostly flat during this period.

Awareness Phase

The awareness phase is when institutional money starts entering the market. Prices move a little higher, and the previous bubble’s buyers spring into action to “cut” losses. This is called a “bear trap,” because some bears claim it’s the end of the world and you missed your opportunity. There were a few bear traps in Toronto around the Great Recession, right up to 2015.

Prices move very quickly, but they haven’t started to climb vertically at this point.

Note: Toronto’s bear traps didn’t make sense during this period, especially before 2012. Toronto real estate prices didn’t hit the 1990 high until 2012, in real terms. Real terms is just fancy-talk for inflation adjusted.

Mania Phase

The mania phase is when the public becomes very aware, and it’s all you’ll hear about from the media. Everyone that made a few bucks, tells their friends, and FOMO sends prices higher. Pro-tip, watch if the people telling you to buy are actually still buying. If they are, you might be friends with smart money. If they aren’t, they’re trying to get you to preserve their asset’s price – intentionally or not. The latter is called “talking your book.”

Prices rapidly escalate, until the asset hits a “new paradigm.” The world will now revolve around this limited product, that only a few people have. After all, they only make so many Beanie Babies. Cash is obsolete, now that we have Bitcoin and central banks can’t devalue your holdings at will. There’s only so much land in Vancouver, and everyone wants to live there. Everyone thinks their asset is the best in the world, and it’ll never adjust for prices. Deal with it.

Prices rapidly escalate here, moving almost vertically.

Blow-off Phase

The blow-off phase is when prices start to fall – first a little, then a lot. After the initial fall, denial starts to occur. How can this be? The media parades “experts,” a.k.a. sellers of the product, to explain things have stabilized. The denial brings a newer, smaller round of money, working on the assumption of relative value. “It’s so much cheaper than last year,” is usually what they’re saying and it bumps prices a little higher. Traders call this a dumb money rotation – smart money’s last chance to liquidate. Buyers here call it the “new normal,” and think things have recovered. After all, it can’t get worse – right?

Only so many people are sold on the new normal though, and once you run out of them – prices resume falling, except much faster. Everyone that “needed” to buy, has already bought. Worried owners worried about their excessive allocation panic sell, triggering larger sell offs. This capitulates prices lower than fair value, assuming the asset still has value.

Prices begin to fall very quickly here.

This is the most interesting phase in my opinion, but it’s usually when the media stops covering it. You stop seeing flipping segments on daytime TV, the news glosses over it. The majority of people don’t want to hear about how bad of an investment they just made. “You can’t talk about Bitcoin/Beanie Babies/Real Estate every day!”

Smart money begins trawling through the mess, and determining if recovery is possible. Sometimes it’s dead money, like Beanie Babies – which have a slim chance of hitting their old peak. Sometimes it’s a gamble, like crypto. Smart money seems a little crazy here, like Mark Yusko raising money for an institutional crypto fund last week. If the asset still has legs, the cycle repeats as smart money starts scooping up more and more. It’ll either be a huge payout when they sell it back to middle class people in a few years, or they’ll lose a ton. The important thing is, they’ll lose less than the bubble buyers.

Here’s what those phases look like in the classic chart.

Phases of A Bubble

The phases of an asset pricing bubble.

Toronto Real Estate Prices Literally Look Like The Textbook Chart For Asset Bubble - Chart

Source: Prof. Jean-Paul Rodrigue, Hofstra University.

Now I’ll leave you with this chart of Toronto real estate. Where do you think we are?

Greater Toronto Benchmark Price

The price of a “typical” composite home across Greater Toronto.

Source: TREB. Better Dwelling.

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  • Bluetheimpala 6 years ago

    Tick Tock.

    • Maher 6 years ago

      How long have you waiting for this bubble to pop now? You’ve probably missed out on hundreds of thousands in gains.

      • Meena 6 years ago

        Ugh, what does that even mean unless you actually sold your house and took the gains.

      • 6 years ago

        I don’t know why waiting for the bubble to pop has to mean that the person missed out on any gains? These aren’t mutually exclusive concepts. You could have bought and sold during the asset cycle (before capitulation), have made money, and are now waiting for another entry point.

        This is what I did. I bought 2 condos – one in Nov 2015 and then another in June 2016 – then sold both properties this past March for close to $400K in profits. Now, I am renting and waiting for another potential entry point.

        It might be that the price plateaus and there is no bubble or maybe there is. All I am saying is that you could have made some money and can be waiting for another entry point; both things can be true.

      • J 6 years ago

        Unless I am mistaken average detached prices in the GTA were nearly 1.6 million in April of 2017. They now sit at $1,244,275. Loss of roughly 340K

        Overall Average treb stats show Average home values at just over 900K in April of 2017. And now they are just over 800K today.

        • AgentX 6 years ago

          Sales mix change on detached. Less luxury units. Detached homes aren’t hot, but people were delusional when they comparing the big luxury detached rush of 2016, to the regular detached home sales of 2017.

      • chin chung 6 years ago

        its already popped thousands of homes are still on market for months even after 150 K + price drops. dont believe me ? do some research ask your realtor for collab.
        Take note of the homes being listed as sold just to see them come back a few months later on market

      • Bluetheimpala 6 years ago

        “You’ve probably missed out on hundreds of thousands in gains.” You are sorely missing the point my friend. Pigs and possums. Tick tock. BD4L.

  • Bought A Condo, But Don't Worry – I'm Fine 6 years ago

    🤣 At least Toronto isn’t Beanie Babies. It sucks to over pay, but that chart comparison is a classic.

    • Trader Jim 6 years ago

      Right? LOL. I bookmarked the original tweet charts from his underrated Twitter, and send it to industry guys worried about buying. Alway ask them what they think, then they usually say something like “but I’ve been waiting so long!” Two years is a long time to generation now apparently.

      • Mossy 6 years ago

        Stephen’s recent tweet: “Are we still pretending that Toronto real estate is sold as a place to live, or have we accepted it’s an unregulated investment sales industry?”

        So much ink is expended on securities regulation and making the stock market safe for the retail investor; yet how many average joes invest in the stock market?

        Meanwhile, real estate is the single biggest investment of most people’s lives, the market is unregulated and opaque, and anyone can say anything they like in order to sell to naive schmucks.

        Just another giant failure of governance. And people wonder why the youth are losing faith in capitalism.

        • Beh G. 6 years ago

          Right on Mossy.

          I wish we had like buttons on BD 😉

          • Better Dwelling 6 years ago

            Request read. We’ll see what we can do. 😀

  • Ian 6 years ago

    Best takeaway from all of this is that there’s going to be a big buying opportunity, but I think everyone knew that. If you didn’t take your hint from bank executives selling, and waiting, you weren’t really looking to make money anyway.

    You just wanted a house, and that’s just fine. Just don’t get mad at your friends and family for not buying, because you regret your decision and you’re worried they aren’t supporting your market.

    • Trader Jim 6 years ago

      This so hard. When bank executives started to sell in 2016, it’s because they saw that things were out of control. They “missed” out on a tiny upswing in 2017, but they didn’t get stuck becoming bag holders in May and having to have their house on the market for a full year afterwards.

      Rich people sell to middle class people, who think following them will make them as rich as them one day. Middle class people try to sell to poor people, and tell them that’s how you become middle class. Most of those classes stay the same if they’re banking on just real estate.

      • chin chun 6 years ago

        im so glad i sold my home in 2016 to a friend of mine. i thought in 2017 i missed out on more gains. but tbh my friend paid 150k more for the property than i purchased it for. but now he is trying to sell but the bank appraised it for 200k less. he is mad .
        also lots of family members i have are wishing they sold in 2017. they are stuck up to a year later even after dropping their home prices up to 200k

      • Moss 6 years ago

        This reminds me of the famous JP Morgan quote: “I made a fortune getting out too soon.”

  • Contrarian 6 years ago

    Just sold my semi-detached in downtown Toronto, total gut reno required, 6 day listing before offer date, no open house, no advertising only MLS, 60 showings, 5 offers, 2 round of offers, sold for 46% over asking, no conditions, 6 week closing. What bubble?

    • Laurie 6 years ago

      Damn, there was a home that could be reno’d for sale in Toronto? I thought those were all gone.

    • Grizzly Gus 6 years ago

      So why sell?

    • Brad 6 years ago

      If you got 46% over asking it just means you listed it at least 40% under value and possibly more lol

    • chin chun 6 years ago

      show us the listing or it didnt happen

    • Someguy 6 years ago

      @Contrarion How exactly is that evidence there isn’t a bubble?

    • SMH 6 years ago

      We want RECEIPTS! Or your just a real estate agent troll.

  • Foxxy 6 years ago

    What type of people bought it? Investors or people looking for a place to live?

    • Beh G. 6 years ago

      Suckers! 😉

      Joking aside, as they say, one swallow don’t make it summer. An agent can list a house at 50% of its market value and sell 50% over asking and come across as a hero to someone naive while selling the bored narrative that there’s no bubble.

      But in reality she just cost her client 25% of the market value of the house on top of her commissions and frankly should be taken to court for that level of negligence. Let’s see if our friend puts up the actual listing so we can decide,

  • chin chun 6 years ago

    Canadian Bank Chiefs Put Mansions On Sale After Warnings in 2016
    The people who bought at the peak of Toronto’s real estate bubble, and then lost hundreds of thousands within months

  • CJ Ray 6 years ago

    I always thought Predatory Pricing was illegal. Leave it to the shysters from the TRESyndicate to set prices so low in order to keep them price wars humming!! Don’t these unethical losers have a conscience? Karma’s a bitch! Its these desperate times (for the shyster) that exposes the seedy underbelly of this market.

    Let us give thanks to the Competition Bureau….

    • Grizzly Gus 6 years ago

      The motive in such a scenario might be much more ugly than only trying to stir up a bidding war. I’m sure there are several agents who are starting to really feel the slowdown in sales and are also leveraged up to their eyeballs in debt. Self preservation can bring out the worst in people.

  • Unspeculator 6 years ago

    Curious if anyone knows the answers to this questions.

    What is the mean price for Toronto/GTA house prices over the last 10 years? Assuming we are expecting a return to that mean, what is the average price we are looking at?

    • CS 6 years ago

      I would love to know the answer to this as well….

      I wish I was smart enough to figure it out!

    • Yuzheng 6 years ago

      There was a presenter at a CMHC conference last year that said credit flows would indicate a 26% drop into 2020 I think. That was without credit expansion policy, but a government boost seems to be the way we operate.

  • Max 6 years ago

    Westside single family median price is already down 25% in one year. I believe, it still has another 15% to go over the next 12 months. It will bottom out there but prices will bounce along the bottom for a while to come. In order to kickstart the RE market again the federal government will rock back the mortgage restrictions – but not for another 12-24 months.

    • Will 6 years ago

      Median is a little deceiving in Toronto. 2026 was a big year for luxury, 2017 for mid sized, and 2028 seems to be renovated garages. 😂

      Prices are down, but the median doesn’t quite capture it properly.

  • CJ Ray 6 years ago


    Add to that:

    Unless Avg Family Income increase 5-10% per year for the next 5-10 yrs, its going to be a very long, slow upward crawl from bottom. People may be coming from other countries, but there is an expectation that a large contingent will be leaving the GTA as well. Crazy prices are pushing out the mills, and baby-boomers will be taking their money and running to more affordable areas, to enjoy retirement.

  • pest 6 years ago

    I’m plenty of cash and won’t give a dime to a home seller, unless he/she accept my conditions to buy. you better go to bankruptcy, before I pay you a dollar out of my budget. houses are liabilities, not an investment (unless you get it at a very low price)

    • Will 6 years ago

      Exactly! Buying now or later, don’t go out if your budget and it won’t be a disaster. People should be happy that B-20 hit, it forcefully prevents people from using the maximum credit.

  • Siggyvan 6 years ago

    Really intrigued by Unspeculator’s question and it would be awesome if Better Dwelling could address this in a credible statistical way – also, it would be a great follow-up to this article. Perhaps you could consider a couple of distinctively different RE markets: GTA, Montreal, Vancouver, Calgary, and Kelowna (just as a personal favor, please!)

  • Chuck 6 years ago

    Interesting that prices are still down from the peak but rent has absolutely sky-rocketed in the meantime. I got sick of renting and bought a place last summer (mid-drop, base value of home up $20K based on comps). Current mortgage is around $2,100 (carrying costs $2,550 with tax and insurance), and at the new rates I’d be looking at $2,450 mortgage and houses are renting in my neighbourhood for around $3,000.

    Moving to Toronto and getting kicked out of my first apartment (which I liked) in place of a landlord’s daughter I kind of feel f*cked renting or buying. I don’t really think either is a particularly good financial decision – just depends on what is important I guess.

    I don’t have much confidence in Toronto real estate. I am hoping to save enough money that if there is a crash I can buy a better house at a cheaper price and then split my current place into two units (bungalow with a walkout basement). That said, a crash in real estate would likely mean a massive economic collapse in which case I’ll probably be jobless and homeless haha.

    • Saab 6 years ago

      For what is worth, the slow down triggers the first domino for economic collapse. The crash and economic collapse both chase each other lower.

      Ontario list 50,000 jobs this month. Right on target with the slow down of prices.

  • Bolongny 6 years ago

    If you were in a bidding war and your realestate agent told you that you need to bid higher than asking and you were the only bidder and paid higher than asking you need to sue your agent asap

    • Resident 6 years ago

      I am with you as well. What I see is that new immigrants who are clueless get caught to this sales tactic by their RE agents. Even educated professionals who have been in GTA for over decade get caught. Hope these guys learn their lesson and do proper research before commiting themselves.

  • Caitlin 6 years ago

    Great article, but I find the graph to be a bit cherry picked. Shouldn’t the annual comparison be applied on the same months or instead, use the annual average? The graph compares the following months: Jan 2009, Feb 2010, Mar 2011, April 2012, May 2012…etc. What was the rationale for designing the graph this way?

    • Saab 6 years ago

      Not seeing this, did you try mousing over? All of the data points are there.

      • Caitlin 6 years ago

        Yes I see the data points along the line now! I read the article on my phone and didn’t realize the graph wouod reveal more information. Was just looking at the labelling on the x axis and found it to be a bit suspect.

        • Saab 6 years ago

          😂 okay, that makes sense, I was looking at it on a desktop. I had no idea what you were talking about. I scrolled back up to check, and was really confused. I’m guessing it’s a mobile screw up. 10 years since we started using mobile devices, and people are still sorting out how to give consisten experiences. 🤦‍♂️

  • Dan 6 years ago

    Can anyone direct me to an exhaustive and historically accurate rendition of Toronto’s RE landscape starting from the 80-90s to today? Either a blog/book would be great. Thanks in advance!

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  • Jim 6 years ago

    Great post, spot on.
    I bought my first house in 1980. While I have done ok, that’s only a function of buying for lifestyle, a lot of sweat equity, but mainly the luck of living in the lower mainland.
    This , I will say it, “bubble” , looks exactly like the others I have lived through.
    Fortunately this go round, I sold a second home, a revenue property, a year ago, and am debt free.
    This “correction” will be a doozy, as we unwind all the speculative glee which has been building since 2009. I expect we will regain current pricing ( not crazy 2017 pricing) about 6 to 9 years after the 2019 early 2020 North American recession. So maybe 2028. A good time to buy smart would be winter 2022. Please, please, please, let there be one more bubble, before I have to retire and downsize.

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