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Gloom or Growth – Where is Toronto’s Housing Market Headed?

Gloom or Growth – Where is Toronto’s Housing Market Headed?
4 min. read

Key takeaways:

  • Bulls versus bears – the irresistible force meets the immovable object
  • Toronto housing market by numbers
  • The Millennial effect
  • The flaws of the overall price average
  • The interest rate debate
  • Between wishful thinking and uncertainty

Ontario’s much-debated Fair Housing Plan continues to enact widespread changes across the Greater Toronto Area’s housing market. Some were expected – a decrease in overall sales volume, reduced foreign investor interest and market uncertainty – while others have taken many consumers and professionals by surprise, such as the condo price boom. As we enter the fall market, debates among real estate professionals, consumers, pundits and the provincial government are heating up, especially when it comes to the GTA’s housing market outlook.

Bulls versus bears – the irresistible force meets the immovable object

The primeval fight between bulls and bears intensified as the fall market kicked off during one of the highest times of uncertainty the Greater Toronto Area housing market has seen in years. Those with a more pessimistic view of current conditions see the market trending further downwards, fueled by the waiting game played by both sellers and buyers, the decrease in foreign dollars coming into the GTA, high levels of debt, increasing interest rates and plunging sales numbers.

At the same time, those who are more bullish consider that the market has bottomed out and will follow Vancouver’s example of reenergized sales and price growth after a requisite period of readjustment to new market conditions.

Toronto housing market by the numbers

A catalyst of the heated debate and avid media coverage of housing issues over the past two weeks has been the August housing market data release by the Toronto Real Estate Board (TREB). With new listings down 6.7% year-over-year, resulting in the lowest levels since August 2010, as well as the whopping 34.8% overall slump in sales, has many fearing for a further slowdown in activity. Fears of continued market slowdown are especially amplified by the second interest hike in 3 months enacted by the Bank of Canada, with concerns over a third increase looming on the horizon before the year is out.

The flaws of the overall price average

Another significant point of contention arises concerning the overall price averages and the recent drops in those levels. While the summer drop in sales made headlines throughout the past weeks, many are frustrated with the widespread silence around the general lower sales volumes experienced in the summer season in healthy market conditions, fueled by buyer behavioral patterns. Furthermore, the average price does not accurately reflect actual price changes experienced by buyers and sellers, or shifting buyer trends among housing categories.

Single family homes in the City of Toronto registered an average price of $1,191,052, a 1.2% Y-o-Y contraction, per TREB data. However, that decrease doesn’t necessarily reflect lowered sales prices, as much as a greater decrease in sales volume across the higher end of the detached home market. That price point also still remains well out of range for most buyers, while the more affordable average condo price of $540,169 is far more attainable, leading to more activity in the lower-priced product category and skewing average home price growth as well as buyer psychology.

The interest rate debate

The Bank of Canada’s interest rate hike remains a highly divisive issue as some fear it will severely decrease purchasing power for many buyers, while others argue that the recently announced hike will spur purchasing activity out of fear of missing out on current market conditions.

As far as numbers and trends go, increased interest rates will most likely affect purchasing power for a significant part of the population. Potential buyers already struggling with affordability in the GTA will find themselves even further away from the dream of homeownership, especially with the potential effects of the controversial OSFI stress test.

Furthermore, for some, the psychological component for the average consumer – already uncertain about the market – is the most worrisome impact the hike may have.

Between wishful thinking and uncertainty

However, as already suggested by the unforeseen price boom experienced by the condo market, which registered a 21.4% year-over-year price appreciation, buyers locked out of the detached home market are expected to turn towards condo apartments in increasing numbers, especially in the larger, higher-priced product category.

This in turn would lead towards further price increases in the condo sector, a more marked growth in the overall average price in the GTA, and possible increased consumer confidence. It could also force detached single-family sellers to consider cutting prices, opening up the market to a larger number of buyers, spurring overall sales both in volume and dollar amount.

The Millennial effect

However, in a shifting market no predictions are certain. Furthermore, evolving buyer tactics and tastes are also reflecting social and cultural changes. With many first-home buyers coming from the Millennial pool, multifamily and urban living are increasing in popularity. This is also reflected in the higher resilience to decreasing sales exemplified by neighborhoods with access to mass transit, green spaces, urban amenities, and proximity to shopping and dining, as well as shorter commute times and walkability.

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