Last Updated on January 24, 2024 by CREW Editorial
Home prices in Toronto have fallen around 19% since February, although they experienced a small resurgence of 0.7% in September 2022. Although the Canadian housing market has been hit by a large recent downturn, markets like Toronto seem to be hitting support.
Since the pandemic occurred, the average price in Toronto and many other Canadian markets have experienced a large and steady increase, driven by foreign speculation and delayed reactions from the Canadian government.
However, this increase has been reversing over the past few months, driven by high debt loads, increasing inflation, and rate increases from the Bank of Canada. Even with decreasing home prices, many economists doubt that affordability will increase much.
Keep reading to find details on real estate investing prospects in Toronto, as well as additional information on the Ontario housing market through the end of 2022.
What Is Driving The Average Price for Toronto Housing?
The Toronto housing markets saw an increase in buyer demand recently due mainly to economic conditions, lifestyle changes, and immigration in the wake of COVID-19. Condo sales in Toronto are currently in a buyer’s market, while other markets favor the sellers.
With the availability of remote jobs in many cities, Torontonians want homes for their lifestyles based primarily on cost. The effects of migration outside urban areas are seen in many Canadian housing markets as homeowners look for more space with less density.
However, with a high amount of debt being held by the average Canadian household, increased rates from the Bank of Canada are affecting a large decrease in average house prices, even if the housing market bounced back slightly through August and September.
Canadian Housing Market Expected to Continue Downturn Through 2023
Reuters reports that Canadian economists are expecting the national downturn to continue through 2023, with a possible recovery sometime in 2024. The housing bubble during the pandemic was driven by low interest rates, which have been raised recently by the BoC.
Estimates of the extent of the drop are getting worse, with new estimates clocking in around 7.8%, compared to the 2.2% drop predicted only a few months prior. This is the largest price decline since the Canadian Real Estate Association started collecting data in 2005.
Conversely, prices in large markets such as Toronto and Vancouver are expected to drop between 8.5% and 7.3% in 2023 after experiencing a steady rise of 13% and 10.6% respectively in 2022 so far.
Average Prices for Toronto Homes Still Largely Unaffordable
Despite recent drops in housing prices, homes in Toronto are still outside the affordable range for median household incomes. The affordability crisis is at the forefront of the public eye, even as rising home prices recover a bit from their lows in the previous months.
Even with the downturn, most Toronto housing remains well outside the affordable range for median income households. NBC reports that the affordability of housing in Toronto has reached the worst it has been in 40 years.
The affordability of Canadian housing is a major focus of the recent report, which is titled “Housing Affordability: The Worst Deterioration in 41 Years in Q2 2022”. The Q2 2022 decline in affordability is the sixth consecutive quarterly decline as of yet.
Data Dive: Comparing Toronto Real Estate Globally
Compared to worldwide markets, the affordability of housing in Toronto has been steadily deteriorating. According to recent numbers from the NBC, downtown home prices in Toronto have reached $860 USD per square foot; above historically expensive cities like Seattle.
The report notes that affordability in the Greater Toronto Area has experienced the largest deterioration since 1981. Mortgage payment averages between condos and non-condos have reached 90% of the median household income.
However, the average monthly rent seems to have plateaued, disconnecting from median mortgage costs and holding steady since back around 2017. The annual income required to afford a representative home in Toronto is sitting around $265,664 CAD.
The statistics above indicate several factors that drive the GTA housing markets. Not only is this populated region of Canada one of the largest for business, industry, and job creation; it is also witnessing a steady population growth.
Canadians Are Divided on the Housing Market
Canadian property buyers have nearly equal confidence in Canadian housing — with 39% as confident as before the pandemic and 37% less confident. 54% say they are still considering buying or selling homes in 2022.
“The inter-provincial relocation trend that we began to see in the summer of 2020 still remains very strong and is expected to continue into 2022,” says Christopher Alexander, Executive Vice President and Regional Director for REMAX.
The REMAX Housing Market Outlook Report shows that some Canadians are still very confident in Canada’s real estate market and housing market, with 49% of respondents saying real estate is still one of their best investment prospects in Canada.
Will 2023 Be a Good Time To Buy a Condo in Toronto?
Many buyers are trying to buy now to avoid increasing interest rates, which will likely make larger mortgages more affordable. However, if you wait on lower prices when you purchase you might not have a chance.
For sellers, properties can sell easily if a buyer is willing to step up. As property in the GTA is hard-to-buy and its trend of appreciation is long-standing, values are likely to continue rising in the next year.
Since interest rates are expected to continue rising, it’s hard to say whether now is a good time to buy into Toronto’s real estate market, even with prices increasing from previous lows. While the market traditionally favors buying in the summer, Torontonian investors are cautious.
Key Issue: Toronto’s Suburban Housing Bubble
There were many signs of the Toronto housing bubble in February 2021. In March 2021, many big banking economists questioned whether home prices had jumped dramatically in the past few years due to speculation. There were, however, no legislative changes.
Bank of Canada Governor Tiff Macklem has been quoted as saying “we need the growth we can get”. This comment came in the wake of concerns being voiced about the significant increase in housing prices throughout the pandemic.
Unlike other countries with highly inflated housing prices, demand for real estate in Canada doesn’t seem to be slowing down, which has driven recent price resurgences in places like Toronto and Vancouver where the housing supply is lower.
Due to these types of fluctuations, as well as the disconnect between demand and availability, the possibility of sudden changes in buyer’s attitudes becomes very real. It will be up to the BoC and Canadian government to curb these sentiments through new policies.
How Can Canadian Investors Profit From This?
The recent resurgence in real estate prices is good news for investors who bought at the bottom, although the downturn may not be over as real estate professionals and real estate agents predict continued national decreases in price through 2023.
However, with prices expected to start recovering sometime in 2024, buyers looking to get in on the bottom floor might be in luck. It will all depend on how the Bank of Canada continues to handle its response to the affordability crisis.
In general, Canadian investors will want to avoid Canadian real estate investment trusts, since these holdings will be highly exposed to the continued national downturn. Buyers of actual real estate in Toronto and Vancouver might be able to see some returns, however.
What The Bank of Canada Has to Say About Real Estate
The Bank of Canada says that housing price responses to policy changes are typically delayed, possibly taking years to reach the intended correction. However, new evidence suggests that the response to recent rate increases may be faster than expected.
Going off listing prices in the US between 2001 and 2019, BoC has noticed that “a one-standard-deviation contractionary monetary policy surprise lowers housing list prices by 0.2%–0.3% within two weeks”.
In other words, the intended changes in housing prices and buyer sentiment may be achieved much faster than originally thought, making recent policy changes potentially effective for short-term price adjustments.
Final Thoughts
The rest of 2022 is expected to bring continued decreases in prices throughout most of Canada. However, experts are expecting home prices to keep recovering slightly in more densely populated areas like Toronto and Vancouver.
It is unlikely that price decreases will do much to alleviate affordability issues, as housing prices are still orders of magnitude higher than the median household incomes in the Canadian housing market.
Still, the possibility of a price resurgence in 2024 seems like enough to keep around half of the Canadian investors confident about Canadian real estate. However, experts urge caution when investing, especially for exposed securities like REITs.
