Almost everyone knows the Toronto real estate market has gone mad as of late, although many would like to have you believe for the most part; that all is okay and the madness is justified.

Governments manipulate interest rates to mask affordability. Banks either prop up or speak down housing depending on how it currently rates to their bottom line. Real estate associations tell you it’s not the “foreign” money driving high prices, its mainly local move up buyers and demand behind the recent high percentages of price escalation.

Let’s set the entire above aside and focus on who loses when the party is over and the lights are turned back on.

I’ll start by saying that not all properties or buyers may be at risk. We all can see that demand is high for choice quality houses in highly desirable neighbourhoods. The same can be said for condominiums as well.

Buyers who are selling property in this market and moving up, down or sideways are taking gains from the sale of one (and sometimes two) property and parlaying their gain often into a more desirable or suitable property. They too are not as much at risk.

Who is at risk? Maybe it’s better to say what is at risk! The entry-level condo market is becoming insane in its price per square foot. Rent, although on the rise the past two years, is not close to what it would cost to purchase and carry an average condo downtown, or in the west and east sides.

You would need $4 per sq.ft in rent after investing in a $475,000 condo with a $100,000 of your own money invested to break even. It’s not happening as of yet so unless rental rates continue to rise, you are operating at a loss on a monthly basis. What happens when interest rates rise on renewal?

What you are also doing is taking a unit that should sell for say $425,000 to an end user (owner occupied) out of the market by pushing up pricing, forcing the first time buyer away from home ownership and the chance to build equity and appreciation. Instead they become renters in a long cycle.

So what happens then? A dwindling supply of first time buyers who are forced into buying what used to be a move-up home/condo price tag as their first home? People trapped into a first time buyer type product because they can’t move-up due to very high prices? What happens when/if rent becomes so prohibitive that people in there 20’s, 30’s and 40’s can’t afford to live within a reasonable commute to where they work?

Our transit system is a joke! It’s nowhere near ready to support density growth outside the downtown core and this is now, not becoming, a very real problem.

Where and how it ends nobody knows. And in someway I hope I’m off in what I’m currently seeing in the marketplace. But don’t believe for a minute that our government’s encouragement and support of foreign investment in real estate isn’t a very big part of the problem.