Metro Toronto
Real Estate Trends and Price Forecast

HIGHLIGHTS

• Home values in Metro Toronto have been volatile in recent years, see-sawing up and down since 2021.

• Industry experts declared that market conditions were improving early in the year compared to 2023, but that’s no longer true.

• A multi-factor analysis identifies Metro Toronto as a higher-risk real estate market.

• Budgets for home purchases are under strain due to the historically high mortgage rates since their historical lows. Promised rate cuts are delayed because inflation has been more difficult to control than expected.

This report covers:

1. What is the state of the Toronto property market?

2. Where are prices headed?

3. Should investors sell?

4. 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.

For those contemplating selling their homes, time is of the essence. Spring is the best time to sell because there is typically less supply. Buyer activity in Canada typically peaks in May. Families like to move over the summer so their kids don’t need to switch schools in the middle of the year.

Prospective homebuyers might consider waiting for a lighter mortgage burden. Mortgage rates are relatively high but are expected to fall in late 2024. Patience will be needed because forecasters keep revising their predictions, pushing out the date when they expect rates to drop.

The market fundamentals are riddled with risk and uncertainty as consumer sentiment has taken a substantial hit. But remember, consumer sentiment can be volatile and is an unreliable predictor of future price trends.

GTA Detached House Prices

Since the peak in Spring 2022, house demand has collapsed. Prices recovered due to extremely low supply; however, recently, supply has been rising steadily.

We believe politicians hope to guide the market toward a typical annual real estate cycle with price growth of 1% to 3% annually— in line with income growth.

Demand in the GTA is low. Many people want to buy a home, but affordability is very low, which is reflected in the number of successful purchases. Significantly fewer people can realize their homeownership dream in current market conditions.

New homebuyers can’t afford to get onto the first rung of the homeownership ladder, and high rates trap existing owners. Families that want to upgrade to a larger home can’t qualify for a new mortgage at the current rates.

Meanwhile, the total active listings are trending upward. They are at their highest level in three years.

Metro Toronto New Construction Home Prices

Prices of new homes have been falling, 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.

As a pre-sale buyer, be sure to demand a discount.

Does this concern you? Read the Pros and Cons of Buying Pre-sale Homes

Pre-sales have also softened significantly.

Market Risks

Based on Mortgage Sandbox Analysis, 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 are “middle of the road” when compared with the previous three years.

There are two key changes in the condo market:

• There has been a shift in demand from small “investor friendly” Apartments in the $400 to $600 thousand dollar range toward more livable owner-occupied apartments in the $600 to $800 thousand range.

• A 2023 report by CICB and Urbanation “found that for the first time in 2022, less than half (48%) of leveraged condo investors were cash flow positive, meaning that for the majority, the rent that was generated by newly completed units was lower than mortgage costs (with a typical 20% down payment), condo fees and property taxes.” We believe that, with higher mortgage rates, the investors have left Toronto for Calgary.

• While supply is trending upward and demand is low, record levels of housing construction are in the pipeline in the GTA.

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.

• Many Canadians work several days a week and need more room to segregate workspace from living space.

• 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.

Metro Toronto Townhouse Prices

Still a challenge for first-time homebuyers

Toronto home prices are not affordable.

A first-time homebuyer household earning $97,000 (the median Metro Toronto household before-tax income) can only get a $345,000 mortgage. If they were to save a $85,000 down payment, they would only be able to buy a home valued at $430,000. The Median condo apartment price is over $600,000, so for them to buy a typical condo apartment, a household needs an inheritance or 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 2024, 2025 and 2026. Many of the forecasters we've surveyed have different expectations for:

• Will the federal government achieve its aggressive immigration targets?

• How long will mortgage rates remain high?

• Will Canada experience a shallow or deep recession?

There is no consensus among economists.

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 prediction, 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:

• CMHC Housing Outlook

• Moody’s Analytics - Canada Housing Market Outlook

• Fitch Ratings Global Housing Forecast

• Reuters Housing Forecast Poll

• Royal LePage House Price Forecast

• RE/MAX Housing Market Outlook

• Canadian Real Estate Association Quarterly Forecast

• RBC Home Resale and Price Forecast

• TD Bank Economic Housing Outlook

• BMO Housing Outlook

• Central1 Economics Ontario Housing Forecast

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, and 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.

4. Is this a good time to buy?

It’s hard to say. Prices have been falling, but interest rates (borrowing costs) are high, so prices could fall further. It's almost impossible to 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.

If you are considering buying, be sure to drive a hard bargain and pay as close to market value as possible. Also, don't bite off more than you can chew when it comes to financing.

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!

Here are some recent headlines you might be interested in:

• Bank of Canada: era of very low rates is likely over, people and firms must adjust (Reuters)

• Bank of Canada deliberations show some felt rates may need to rise higher (Global News)

• Bank of Canada likely done raising rates, to cut by mid-2024 say economists: Reuters poll (Reuters)

• Rising rates on homeowners and the shocks that lie ahead (CMHC)

• Upcoming mortgage renewals have homeowners concerned (Edmonton Journal)

• Canada is in for a cooler winter in real estate as sales slow: CREA (Global News)

• Home Prices in Canada Are So Stretched That Even Owners Want Them to Fall (Reuters)

• Posthaste: The risk of forced home sales is rising in Canada, warns economist (Financial Post)

• B.C. real estate market notches downward amid climbing interest rates, association says (Vancouver Sun)

• LACKIE: Bleak times for Toronto real estate market (Toronto Sun)

• Calgary Real Estate Board reports 17 per cent increase in October home sales (Calgary Herald)

• Vaughn Palmer: End of the line for single-family neighbourhoods in most of B.C.(Vancouver Sun)

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