Metro Toronto 2024 Property Market Recap

As the dust settles on 2024, Toronto’s property market finds itself in a precarious equilibrium, marked by modest improvement over the dismal depths of 2023 but still far from its former glory.

Demand, while better than last year, remains subdued when viewed against historical norms, and a cautious mood pervades both buyers and sellers.

From Boom to Bust: A Story of Speculation and Correction

The Metro Toronto housing market is still reeling from the aftershocks of a speculative frenzy that peaked in Spring 2021 when rock-bottom mortgage rates fueled a buying spree.

This momentum carried the benchmark house price to an eye-watering $1.7 million by mid-2022, while benchmark apartments soared to $825,000.

The exuberance, however, proved unsustainable. By the close of 2024, house prices had retreated roughly 20%, now hovering near $1.35 million, with condo prices similarly reduced to $650,000.

Skyrocketing Supply

Active listings are growing at an unexpected rate. Most analysts assumed the record population growth would absorb new listings as soon as they came to market, but properties have sat on the market for months.

Supply Grows, but Demand Falters

The fallout from the market's peak has been compounded by tepid purchase activity over the past two years. Despite falling mortgage rates, which sparked a brief flurry of activity in autumn, December wiped out those gains, leaving 2025 as an open question. Qualifying 5-year fixed mortgage rates are expected to remain near current levels for the next two years, suggesting a prolonged period of stagnant demand and prices.

On the supply side, developers, emboldened during the 2021-2022 boom, initiated a wave of new construction, leading to a 20% rise in housing starts. Many of these units, particularly in the condo segment, are slated for completion in 2025, raising the spectre of oversupply just as demand remains lacklustre.

A Shifting Population Dynamic

Immigration has long been thought to be a cornerstone of Toronto’s housing demand, with the city welcoming the majority of new arrivals to Canada in recent years. Interestingly, peak demand was in 2021 when population growth was lowest. By mid-2022 and 2023, demand had dried up, and prices were falling.

This calls into question the role of the population growth narrative as a stand-alone metric as it relates to demand and property values.

If we accept that population growth directly drives housing demand, higher prices and higher rents, then the planned federal cuts to immigration targets, implemented to curb affordability pressures, could temper this demand driver. While a reduced influx may ease the strain on affordability in the short-term, it raises a critical question:

Can Toronto’s housing market regain momentum without the demographic pressures that once fueled its growth?

The Employment Conundrum

Employment is the bedrock of housing demand, and here, Toronto faces another challenge. The city’s full-time employment growth has slowed markedly, limiting the purchasing power of prospective buyers. From an unemployment rate standpoint, Metro Toronto ranks worse than most other major Canadian metropolitan areas.

Painful Mortgage Renewals

According to the Bank of Canada, 60% of outstanding mortgages will renew before the end of 2026. Assuming that mortgage rates evolve according to current forecasts, approximately 40% of all outstanding mortgages will renew at a higher mortgage rate, resulting in higher mortgage payments for the homeowner.

Some owners and investors might throw in the towel and sell their homes to make ends meet.

Buy-to-rent Investors Hurting

According to research by CIBC and Urbanation a large share of Metro Toronto condo apartment rentals are cash flow negative.

Likely, the owners are holding out for property price gains to cover the operating losses. The questions here are:

• How long can they fund a rental that isn’t profitable?

• Will a mortgage renewal plunge them further into the red?

• How much would the property price need to rise to match the original purchase price, the property transfer tax costs, and the cumulative operating deficits?

After consulting a wealth professional, they might find they are better off cutting their losses.

Weak Rents

Compounding this, rents have declined by 9% over the past year, potentially deterring buy-to-rent investors. With risk-averse capital on the sidelines, the market's recovery may be delayed further.

Policy and Prices: Room for Optimism?

On the brighter side, two developments could provide some relief.

First, mortgage rates, while still elevated, have eased from their post-2022 peak.

Second, policy changes by the Canada Mortgage and Housing Corporation (CMHC) in August 2024—such as raising the allowable house price for high-ratio mortgages to $1.5 million and extending amortization periods to 30 years for certain buyers—could nudge the market in the right direction.

Yet these measures, while potentially beneficial, have so far failed to deliver a transformative impact. Toronto’s affordability crisis persists, with many still priced out of the market despite the recent correction.

Risks on the Horizon

The road ahead is fraught with risks. A glut of new condo completions in 2025 could tip the market into oversupply, while declining rents and a tepid job market may further dampen investor confidence. Meanwhile, affordability, though improved, remains far from pre-pandemic levels, and it is unclear what, if anything, could restore Toronto to its former equilibrium.

A New Normal?

Toronto’s housing market appears poised for a period of recalibration. The range of possible outcomes has widened dramatically. 2025 and 2026 are likely the shakeout years before the market stabilizes into some semblance of a “new normal.”

Whether 2025 brings runaway growth or sharp declines is anybody’s guess. The current market conditions are unprecedented.

• We are coming off of nearly two decades of abnormally low mortgage rates.

• Affordability is worse than preceding the 1990s property bubble.

• Federal government policy will “see-saw” Canada from record-high population growth to potentially negative population growth.

• There are near-record levels of condo construction, many of which will be completed in 2025-26. While they might be pre-sold, whoever occupies them will vacate a home elsewhere increasing supply.

• One million Canadian homeowners will face rising mortgage payments at renewal in 2025, some may be formed to sell.

• Metro Toronto rental rates have been falling prior to the expected population contraction.

• A high share of condo apartment rentals in the GTA are cash flow negative and feel both cost and revenue pressures, and some might decide to cut their losses.

Your takeaways

Current conditions, with more available listings, may signal a window of opportunity to buy a home without the frenzied competition of years past. Buyers might even encounter some very motivated condo apartment sellers.

For investors, however, the message is clear: caution is warranted. Discuss property investing with a wealth professional, agree on the percent investment return that warrants entering the property buy-to-rent market, and ensure the numbers work. Stress test the business case against higher mortgage rates and lower rent rates.

As 2025 begins, Toronto’s property market finds itself in a state of volatility. The stakes are high for a city so deeply intertwined with its property market.