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A Look Inside the Moderating Toronto Real Estate Market

Updated: Dec 7, 2021

The Toronto real estate market has been one of the hottest in the world. From the growing number of economic opportunities to the excellent standard of living, Toronto is one of the most desirable places to live. But hefty demand, from both before and during the coronavirus pandemic, is has tightened inventory and caused prices to rise beyond what might be considered “typical” increases.

Despite the two-month respite in the Toronto housing market in the early days of COVID-19, the gains have been monumental, especially for detached and semi-detached residential properties. Condo units have only recently started to rebound, leading to expectations of further growth ahead.

Although the bullish signs are abundant for this major urban centre, the on-fire Toronto real estate market has shown signs of moderating in the final months of 2021. But the cooling in Toronto is vastly different than in, let’s say, Atlantic Canada or a rural community in Saskatchewan. Let’s take a closer look.

A Look Inside the Toronto Real Estate Market

According to the Toronto Regional Real Estate Board (TRREB), residential sales in the Greater Toronto Area tumbled at an annualized rate of 19.9 per cent in August, totalling 8,596 transactions. On a year-over-year basis, demand for detached, semi-detached, and condominiums soared in the second quarter.

Prices remained fierce, as the average selling price for all homes advanced 12.6 per cent year-over-year to $1,070,911.

The biggest revelation in the report was the resurgence in the Toronto condominium market. Throughout much of the coronavirus pandemic, condo prices in many of Canada’s urban centres fell due to the influx of supply, leaving new buyers sitting with negative equity, which seemed almost impossible before the COVID-19 public health crisis.

That said, despite the skyrocketing GTA housing demand, inventories are tight, facilitating an environment of heated competition between homebuyers. This has supported notable pricing gains.

In August, TRREB data found that the number of new listings fell by 43 per cent.

“Sales have accounted for a much higher share of new listings this year compared to last, and the story was no different in August. There has been no relief on the supply side for home buyers, in fact, competition between these buyers have increased. As we move toward 2022, expect market conditions to become tighter as population growth in the GTA starts to trend back to pre-COVID levels,” said TRREB Chief Market Analyst Jason Mercer in a news release.

Still, according to many housing industry observers, it appears that the frenzy has subsided – for now. But that does not mean the structural components of the Toronto real estate market have improved. From inadequate inventory levels to bidding wars, there is a lot still supporting elevated pandemic-era prices. For market analysts, the next few months could lay the foundation of what to expect in the GTA housing sector heading into 2022.

What’s On the Horizon in the Toronto Real Estate Market?

The fall real estate market in Toronto could offer more of the same: a lack of supply, steady demand, and high prices. However, some industry experts hint that the Toronto housing sector is essentially returning to a pre-pandemic normal – but with record-high valuations.

Like the rest of the Canadian real estate market, one of the critical factors impacting the Toronto real estate market will be interest rates. The Bank of Canada (BoC) is widely anticipated to pull the lever on a rate hike sometime next year, particularly as the annual inflation rate increased to its highest level since 2003.

“It is reasonable to expect that when we do eventually need to reduce monetary stimulus, our first move will be to raise the target for the overnight rate — our policy interest rate,” Governor Tiff Macklem said in a recent speech to the Quebec Chamber of Commerce.

If the central bank gives the nod to a rate hike, this will inevitably raise borrowing costs of homebuyers, giving them fewer options in the expensive housing market. During the pandemic, buyers could get more for less and expand their real estate choices, such as a larger property or living in the lucrative major urban centres. Ultimately, this change could lead to a smaller pool of buyers and shrinking demand.

Meanwhile, an increase in the mortgage stress test could be another vital component in the Toronto real estate market. Under the new stress test rate of 5.25 per cent, a family’s maximum affordability would decline to $618,000. Considering that the average price for a home in Toronto is more than $1 million, it would be challenging for many homebuyers to be approved for a mortgage in Canada’s largest city.

A Moderate Post-Pandemic Market?

Before the pandemic, Toronto was one of the hottest housing markets in the world. During the public health disaster, the city continued to be a red-hot real estate market. As the Great White North inches closer to leaving the coronavirus pandemic in the rear-view mirror, Toronto will still be a fiery housing sector in Canada and the rest of the world. Over the next several years, Toronto’s population is expected to grow, weighing on an already tight industry and adding to the ultra-competitive list of buyers. A rebounding condo sector and skyrocketing detached properties – Toronto could be aligned for long-term growth.



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