A bungalow is listed on the Toronto real estate market for nearly $3 million

A two-bedroom Toronto bungalow is listed for $2.9 million, adding more fuel to the argument that the real estate market in Canada is sitting on a bubble.

The tiny Etobicoke bungalow in the city’s southwest corner is currently a rental property, according to the listing, which states that tenants are currently paying $4,400 per month. The listing describes the surrounding Alderwood neighbourhood as an up-and-coming neighbourhood in the overheated Toronto real estate market.

Last month, the Canada Mortgage and Housing Corporation warned in its Housing Market Assessment that the national real estate market is at risk, singling out Toronto as the most vulnerable among the urban metropolises.

Canadian economists like RBC’s Robert Hogue and BMO’s Robert Kavcic and Benjamin Reitzes have urged a response from governments to cool a housing market that is on fire.

In their month-end special report, BMO’s Kavcic and Reitzes say the key to the issue is “market psychology.” While development policy has created a shortage on the supply and affordability side – creating the so called “missing middle” – the economists argue that buyer and seller speculation is adding fuel to the fire. They cite Mortgage Professionals Canada’s recent survey, which reported that people are more confident than ever that home prices will gain in value and mortgage rates will remain at their historic lows.

“The action needed today is one that immediately breaks market psychology and the belief that prices will only rise further,” says the report by Kavcic and Reitzes. “That would dampen the speculation and fear-of-missing-out that those expectations are creating.”

Kavcic and Reitzes make a number of recommendations including further tightening of mortgage standards, a national non-resident tax and limiting equity borrowing.

They consider whether the Bank of Canada should either hike interest rates or back off its commitment to hold near-zero rates until 2023, though they also acknowledge that such a move could have a negative impact on post-pandemic economic recovery.

They also call for measures that would eliminate blind bidding in real estate transactions, so that buyers could make more competitive offers rather than overreaching to win and setting new expectations for the market.

Kavcic and Reitzes echo Hogue’s controversial suggestion to introduce a capital gains tax on primary residences, though their recommendation is embedded in a more complex scheme to disincentive speculation.

Non-primary residences would have a new speculation tax added to the current capital gains rate. Meanwhile, primary residences will have to pay the new speculation tax as opposed to the current capital gains rate. The special capital gains tax would gradually fall to zero over a five-year period. That means it won’t affect buyers purchasing a long-term residence for themselves.

If the market is left unchecked, buyer and seller confidence will continue to lead to listings where bungalows are listed for $2.2 million in West Hill, $2.6 million in Pickering or $2.9 million in Etobicoke.

All of these bungalows sell their large lots to incentivize speculators and developers. The latter property in particular recommends the lot could be used for commercial redevelopment. Potential buyers can only make appointments to walk the land so that they do not disturb the current tenants.

The Toronto real estate market is so hot that you could list a bungalow and the land that it’s sitting on for nearly $3 million and expect potential buyers not to care to see inside the home.


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