Metro Toronto Home Price Forecast
HIGHLIGHTS
Home values in Metro Toronto declined in 2022. There are signs of a possible turnaround this year; however, the most recent data indicates the recovery has stalled.
In comparison to recent years, GTA homebuyer demand has greatly decreased.
A multi-factor analysis identifies Metro Toronto as a higher-risk real estate market.
Budgets for home purchases are under strain due to the significant increase in mortgage rates since their historical lows.
This report covers:
What is the state of the Toronto property market?
Where are prices headed?
Should investors sell?
Is this a good time to buy?
1. What is the state of the Toronto housing market?
Home Price Overview
Metro Toronto has a population of roughly 6.4 million and was ranked 24 of the best 100 cities in the world.
The pandemic turbocharged the Metro Toronto housing market, driving up prices at a remarkable pace and causing aspiring homeowners to be pushed further away from their dreams. And just when they thought things couldn't get trickier, rising interest rates now force even more potential buyers to sit on the sidelines.
Yes, prices are rising again, but it’s not a result of more buyers - it’s the result of fewer sellers.
For those contemplating selling their homes, time is of the essence. Home values in many areas of Metro Toronto dropped double digits from the 2022 peak. While prices have been rising this year, the data has mixed messages, and the recovery might stall in the summer. Current conditions are leaving everyone uncertain about when markets will stabilise.
On the other hand, prospective homebuyers might consider waiting for a lighter mortgage burden. Mortgage rates are relatively high. Unfortunately, patience will be needed because rates are anticipated to remain high until 2024.
The market fundamentals are riddled with risk and uncertainty as consumer sentiment has taken a substantial hit. But remember, consumer sentiment can be a volatile and unreliable predictor of future price trends.
GTA Detached House Prices
Since the peak in Spring 2022, house prices in the Toronto area have fallen significantly. Government intervention successfully shielded the real estate market from the pandemic-induced recession, but now higher interest rates are weighing on the market.
We believe politicians hope to guide the market toward a typical annual real estate cycle with a price growth of 1 to 3% annually – in line with income growth.
Demand has softened most at the top of the market (houses over $1.5 million). Total purchases are still very high by historical standards but much lower than last year.
Whereas many people want to buy a home, affordability is very low, and this is reflected in the number of successful purchases. Significantly fewer people can realise their homeownership dream in these market conditions.
At the same time, homeowners are unwilling to sell. Why?
1. Peak Price Anchored: Potential Sellers Anchored to Previous Peak
Potential sellers think their home is worth more than its current price on the market, so they’re waiting in the hopes that prices will rise to the peak values of Spring 2022.
Even though, technically, a home is only worth its current value on the market, people fundamentally don’t feel that’s true. This phenomenon is called anchoring.
2. Trapped: People Can’t Qualify for a New Mortgage
Families that want to upgrade to a larger home can’t qualify for a new mortgage at the current rates. They will not sell their old home if they can’t buy something new.
3. Opportunistic Landlords: Strong Rental Market
Typically, when people right size their housing (e.g., bigger home for a family, smaller home for empty nesters), they sell the home and buy a new one. However, the rental market is so strong that many potential sellers have been tempted to rent their old homes instead.
Even with active listings on par with previous years, with cooling demand, the market is trending toward balanced territory.
Metro Toronto New Construction Home Prices
Prices of new homes have begun to drop, and some homebuyers might find they will have paid much more than the more recent buyers in their development. Based on economic fundamentals, they will likely continue to drop.
Does this concern you? Read the Pros and Cons of Buying Pre-sale Homes
Even while the market is softening, new construction starts have been booming, and total units under construction are breaking records.
Housing Market Risks
Mortgage Sandbox Analysis shows Toronto is at high risk of a significant market correction.
Metro Toronto Condo Apartment Prices
After breaking records during the pandemic, Metro Toronto apartment prices are falling.
Purchases have been “middle of the road” compared to the previous three years and trending lower.
There are two key changes in the condo market:
Apartments in the 400 to 800 thousand dollar range comprise most activity.
There are record levels of housing construction underway in the GTA, and most new units are condo apartments.
Potential Condo apartment supply is abundant - particularly in downtown Toronto with plenty of underdeveloped land.
With more people working from home, we expect developers will begin marketing larger (i.e., 2 and 3 bedrooms) apartments to meet buyer preferences. As the supply of more generous floor plans comes to the market, it may depress the values for small floor plan condos.
At Mortgage Sandbox, we would like developers to build 4 and 5 bedroom condos because:
Not everyone can afford to buy a house for their family.
Canadians who now work from home need more room to segregate workspace from living space within their homes.
Many Canadians with longer working hours find it challenging to stay on top of necessary house upkeep (i.e., mowing lawns, clearing eaves, shovelling sidewalks).
Many people prefer to live in higher-density neighbourhoods with all the essential amenities within walking distance.
Still a challenge for first-time homebuyers
Toronto home prices are not affordable.
A first-time homebuyer household earning $78,000 (the median Metro Toronto household before-tax income) can only get a $320,000 mortgage. For them to buy a condo apartment valued at the benchmark price of $590,000, a homebuyer needs to save a little more than $270,000 cash for a down payment and closing costs or receive a very generous gift from family. For most people, that is not possible.
What about the rest of Canada?
Read the Ottawa Forecast, Montreal Forecast, Hamilton Forecast, and the Vancouver Forecast.
2. Where are Metro Toronto prices headed?
There is a lot of uncertainty in the forecasts for 2022 and 2023. Many of the forecasters we've surveyed have different expectations for:
Will the federal government achieve its aggressive immigration targets?
How much will interest rates rise? How quickly? For how long?
There has yet to be a consensus among economists. Market sentiment and government stimulus have led to price acceleration and record home purchases even though most economic fundamentals have faltered.
How do we arrive at our forecast range? Check out our full assessment of the five factors that drive these forecasts. These five forces help explain why several forecasters are anticipating price drops.
At Mortgage Sandbox, we provide a price range rather than attempting a single prediction because many real estate risks can impact prices. Risks are events that may or may not happen. As a result, we review various forecasts from leading lenders and real estate firms. We then present the most optimistic estimates, the most pessimistic predictions, and the average forecast.
Would you like to learn more about real estate risk? We've written a comprehensive report explaining the uncertainty level in the Canadian real estate market.
Our forecast inputs:
3. Should Investors Sell?
From a seller’s perspective, more changes in the market influence prices downward, so now may be a better time to sell than in two years. The annual real estate cycle usually favours sellers in the first half of the year.
Sellers should always consult a mortgage broker early to prioritise flexible loan conditions and reduce the risk of mortgage cancellation penalties. Find out more about the benefits of a mortgage broker.
Planning to Sell? Check out our Complete Home Seller’s Guide.
Fixed or Variable rate mortgage? Find out where mortgage rates are headed before you start to negotiate.
4. Is this a good time to buy?
It’s difficult to say. Prices have been falling, and interest rates are projected to remain high, which means prices could fall further. It's almost impossible to perfectly time the market. If you are buying your forever home and don't plan to sell for ten years, then the risks of buying now are lower.
Regardless, the annual real estate cycle usually favours buyers in late summer and early autumn.
If you are considering buying, be sure to drive a hard bargain and pay as close to market value as possible. Also, when it comes to financing, only bite off what you can chew.
Are you planning to Buy? Check out our Complete Home Buyer’s Guide so we can walk you through the end-to-end process and get you ready to buy your new home!
Recent News
Here are some recent headlines you might be interested in:
Posthaste: Canada's housing market is hot again — expect it to stay that way, economists say (Financial Post)
Friction upon reentry: Three landing scenarios (KPMG Economics)
Posthaste: Canada's housing market is showing green shoots, but something is missing (Financial Post)
Banks seek workarounds to avoid mortgage default for struggling variable-rate borrowers (Financial Post)
Larger investors dominate condo ownership in smaller cities in Ontario and B.C. (The Globe & Mail)
Interest rate hold could add heat to real estate markets: mortgage experts (BIV)
More than half of GTA condo investors losing money on properties, says new report (CBC)
Private mortgage lenders refusing to renew loans to borrowers (The Globe and Mail)
Richmond developer allows buyers to move in today, pay mortgage in two years (Richmond News)
Rising rates are exposing weak spots in the financial system and the next flashpoint could be real estate (Financial Post)
Immigration fuels Canada's largest population growth of over 1 million (BBC News)
Housing affordability - first improvement in 2 years (National Bank of Canada)
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