Is a crash inevitable in the Toronto real estate market? As Canada’s financial capital continues to post impressive housing numbers, the talk of the town has been a real estate bubble. With rising interest rates, a decrease in demand, and an uptick in listings, it looks like Toronto is moving into a more balanced housing market.
According to new data from the Toronto Regional Real Estate Board (TRREB), residential property sales tumbled nearly six per cent year-over-year in October, totalling 4,646 units. On a month-over-month seasonally-adjusted basis, home sales were also down from September to October.
Despite the slump in sales activity, Toronto real estate prices maintained their upward trajectory. TRREB data show that the average price climbed by 3.5 per cent to $1.126 million in October. In proper Toronto, here is a breakdown of the different property categories and their average prices:
- Detached: +8.2 per cent to $1,718,440
- Semi-Detached: +4.7 per cent to $1,278,347
- Townhome: +1.1 per cent to $1,017,094
- Condo Apartment: -1.7 per cent to $729,160
Although there was a drop in demand, growing population levels and a robust Toronto economy are supporting the latest wave of home sales, says TRREB President Paul Baron.
“However, more of that demand has been pointed at the rental market, as high borrowing costs and uncertainty on the direction of interest rates has seen many would-be home buyers remain on the sidelines in the short term. When mortgage rates start trending lower, home sales will pick up quickly,” he said in a report.
Will the Toronto Real Estate Market Crash Soon?
With the Bank of Canada (BoC) potentially cutting interest rates next year in response to slowing inflation rates, there is a likelihood that prices will start rising again. The pace, however, is up for debate.
But while interest rates are certainly an essential factor in the housing markets across the Great White North, inventory is another vital concern. Thankfully, it is looking like there may be some relief for Torontonians.
According to data from the Canada Mortgage and Housing Corporation (CMHC), housing starts have improved from the previous year. In October, housing starts totalled 3,708, up 30 per cent from the same time a year ago. On a year-to-date basis, housing starts have exceeded 43,000, up 22 per cent from the first 10 months of 2022.
Can the New Housing Construction Boom Persist in 2024?
While housing starts and new builds have been strong, Kevin Hughes, CMHC’s deputy chief economist, says much of these projects were launched when interest rates were historically low.
“Given larger building sizes and resulting longer preparation time of the buildings started in Toronto and Vancouver, the numbers posted in these cities are the result of a process that began at a time when financing and building conditions were considerably more favourable,” said Hughes.
With interest rates reaching their highest levels since before the global financial crisis and because monetary policy functions with a lag, there could be a slowdown coming. At the same time, with financial markets penciling rate cuts for as early as spring 2024, another residential construction boom could happen.
In the meantime, supply has drastically improved in the Toronto real estate market over the last year. TRREB figures confirm that new and active residential property listings soared 38 per cent and 50 per cent, respectively.
What Would Cure an Overpriced Market?
The go-to solution for any proposal is taxation. Still, there are three other ideas that would have more of a long-term positive effect, according to Christopher Alexander, President at RE/MAX Canada:
- Add a mandatory condition to every offer, making the purchase conditional on financing.
- Implement an industry “watchdog” to review transactions where homes are sold well over the asking price.
- Introduce more housing supply.
Aside from that, the only thing institutions can do is publish reports that allude to the growing number of markets, including the Toronto real estate market, that are vulnerable to a sudden price collapse.
What’s Next for the Toronto Housing Market?
Whether the Toronto real estate market experiences a crash or not remains to be seen. But Patricia Lovett-Reid, the Chief Financial Commentator at CTV News, has these recommendations if you want to purchase a home: get pre-approved, gather your documentation, and read the fine print of your pre-approval. These are essential steps to take so that when you see an opportunity to achieve the Canadian dream, you already have the legwork done.