When looking at forecasts for Toronto’s real estate market, or any market for that matter, it’s important to understand that these predictions are only as good as the information that experts have at the time. Unexpected shocks or changes to the market can impact the accuracy of a forecast. For example, the introduction of 40-year mortgages had a significant impact on Toronto’s real estate market in 2007 (see my previous post, Extended Amortizations and Toronto's Real Estate Market: Real Opportunity or Bubble Booster?). Roughly 10,000 more people bought homes in 2007 than in either 2004,2005 or 2006. Much of this increase had to do with the fact that housing suddenly became more affordable, driving up demand in that year.
So why didn't experts anticipate this surge in demand in 2007? One possibility is that forecasts for a slowdown were announced before CMHC introduced the 40-year mortgage. Another possibility is that forecasters who did take the 40-year mortgage into account, underestimated the impact it was going to have on the market.
