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Up, Up, and Away: Toronto Housing Prices Climb Higher!

With the recent increase in the target overnight rate to 4.75%, the Bank of Canada’s efforts to tighten monetary policy address mounting inflation concerns. Experts foresee a raise of another 25 basis points in the coming months.

Image of a hot air balloon as a symbol of Toronto Housing Prices

Canada’s economy exceeded expectations in Q1 2023, with a GDP growth rate of 3.1%. Services and interest-sensitive goods, including the housing market, experienced increased demand. The Central Bank predicts that consumer price inflation (CPI) will ease to around 3% in the summer, but it may remain above the 2% target. To address this imbalance and bring inflation back to the target, the Central Bank raised the policy interest rate.

These developments significantly affect the prices of Real Estate Canada. However, there are other factors at play which may have influenced the dynamics of home prices.

Decoding the Housing Market

Let’s discuss the various contributors to the rising prices of homes in Canada, especially in Toronto.

Rise in Interest Rates

Rising interest rates have strained Canadians’ ability to manage mortgage debt, leading to higher borrowing costs. This has resulted in more considerable household debts, and rising interest rates are expected to affect all mortgage holders, with an estimated 20% increase in median payments by the end of 2026. We recommend using a mortgage payment calculator to help you decide whether to start your homebuying journey this year.

Increasing Demand

The growing demand for houses in Canada has been further bolstered by two factors, leading to increased competition and heightened buyer interest.

First, population growth strongly correlates with real home price increases, with a 1% rise in population associated with over 3% annual growth in home prices. Canada’s population has been growing at an average yearly pace of 1.5%, leading to around 5% annual home price gains.

Second, the relaxation of the ban on foreign buyers, particularly for work permit holders, has attracted new buyers. This has intensified the seller’s market, with properties often selling for more than the listed price and multiple bid scenarios becoming common.

These additions have expanded the buyer base and contributed to Canada’s current real estate market dynamics. A first-time homebuyer may need help with the minimum downpayment for buying a starter property.

Shortage of Inventory

Canada is currently facing a shortage of housing inventory, with national new listings reaching their lowest levels in nearly two decades, even after accounting for pandemic-related effects.

The construction industry is operating at maximum capacity, unable to keep up with the growing demand despite efforts to increase labour through immigration. This limitation hampers the ability to expand the supply of Toronto houses for sale and meet the needs of the population.

In addition, the Canadian housing market is experiencing a significant impact from the dominance of investor-owned properties. A recent study revealed that investors own more than 25% of dwellings in five provinces, including Ontario and B.C.

Investors are hesitant to enter the market during a downturn, preferring to hold onto their properties and wait for better conditions. A robust job market and accumulated financial reserves prevent homeowners from selling their investment properties altogether. Also, homeowners who have secured favourable mortgages are less inclined to move due to the attractive terms they enjoy. Lastly, the rental market offers a strong alternative for investors, allowing them to rely on rental income rather than selling their properties.

These factors contribute to the ongoing affordability challenges and the persistent imbalance between housing demand and supply in Canada. 

2023 So Far in Toronto’s Housing Market

The GTA’s housing market in 2023 has witnessed a surge in home sales, with a 24% increase compared to the previous year. However, new listings have decreased by 19%, intensifying buyer competition and potentially leading to further price increases. The sales-to-new-listings ratio indicates a seller’s market, favouring sellers due to limited inventory.

Toronto's Housing Market

Average home prices in the GTA have shown mixed performance in May 2023. The benchmark home price decreased by 7% year-over-year, reaching $1,164,400. However, certain property types experienced notable changes. Detached homes saw a modest 0.5% increase, getting an average price of $1,556,566. On the other hand, semi-detached houses had a 0.5% decrease in average price. Freehold townhouses recorded the most significant annual gain among property types, with a 5% increase, while condos saw a 3% decrease in costs compared to the previous year.

Property types have shown mixed performance, with detached homes experiencing a modest increase while condos saw a decrease in average prices. Looking ahead, the pause in rate hikes and moderate mortgage rates may support the market’s recovery, but the lack of new listings could contribute to ongoing price increases.

Toronto Home Prices: A Challenge and Opportunity

Toronto houses for sale have witnessed a price surge driven by limited supply and high demand. The Greater Toronto Area (GTA) experienced a 4% increase in average home prices in May 2023, reaching the highest level in nearly a year. However, compared to the previous year, prices remain slightly lower.

The shortage of housing supply, with new listings decreasing by 16.6% year-over-year, has contributed to the affordability crisis in Toronto and the Greater Golden Horseshoe region. There need to be more housing options for buyers, and if supply fails to keep up with population growth, the region’s economic development may suffer.

This affordability problem can be attributed to factors such as the influx of international investments and the high demand from Canada’s population. While measures by the Bank of Canada have curbed speculative activity, continued immigration-driven demand and domestic pressures suggest that higher home prices may become the new norm.

However, amidst these challenges, there are opportunities to address housing affordability. The Toronto Regional Real Estate Board’s survey revealed that most respondents recognize and want the prioritization of affordability in housing policies. With public awareness and demand for change, there is an opportunity for the next policymakers to tackle this issue.

By addressing the shortage of housing supply, exploring innovative solutions, and prioritizing affordability, Toronto has the potential to create a more inclusive and sustainable housing market. Despite the current challenges, a collective effort can pave the way for a brighter future where housing becomes more accessible and affordable.

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