The Toronto Housing Market Report, according to CMHC

The landscape of the Greater Toronto Area (GTA) housing market in 2023 is shaped by various factors, with insights provided by the Canada Mortgage and Housing Corporation (CMHC) playing a crucial role in understanding the unfolding scenario. A significant revelation from CMHC points towards a decline in total housing starts in 2023, followed by a recovery in the subsequent two years, 2024 and 2025. According to the Housing Market Outlook, the dip in 2023 is attributed to a sharp drop in pre-construction sales of ground-oriented homes in 2022, which naturally translates to fewer units breaking ground in 2023. Additionally, the rising costs of construction, labor shortages, and escalating financing costs due to high interest rates are poised to limit apartment starts in the same year.

The Backlog and Its Implications

A noteworthy backlog continues to characterize the Toronto CMA housing market. At the culmination of 2022, a record 101,000 units were under construction, with a majority being apartment units. The need to complete more existing projects to liberate resources for new units to commence construction is evident. However, labor shortages and supply chain issues have resulted in a 21% decline in housing completions in 2022 compared to 2021, further contributing to the backlog.

Price Dynamics and Future Projections

The GTA’s average MLS® price, after reaching a zenith in 2022, is anticipated to descend in 2023 and subsequently ascend in 2024 and 2025. The elevated mortgage rate environment is identified as the primary factor nudging the average MLS® price lower in 2023. For context, the average household needed almost 22% more disposable income than was being earned to qualify for a mortgage on the average-priced GTA home in Q4 of 2022. If mortgage rates persist in being high in 2023, the required income needed to qualify for a mortgage will follow suit, prompting a continued decline in prices and a shift in sales toward lower-priced homes.

Rental Market Conditions: A Tightening Grip

The average vacancy rate for purpose-built rental apartments in Toronto is expected to slightly decrease over the forecast horizon (2023–2025), maintaining a strong upward pressure on rents. Several factors contributing to rental demand in 2023 and beyond include high levels of immigration, hindered mobility from the rental market to the homeownership market due to the high cost of homeownership in the GTA, and potentially, a tight labor market and robust wage growth, especially among the youth demographic.

Risks and Considerations

Two significant downside risks to the resale market forecasts have been identified: a deeper recession in 2023 than assumed in the projections, which could result in extensive job losses and more listings coming to market than anticipated, and the scenario where mortgage rates remain higher for longer, compelling highly indebted households to sell. Both cases would result in the supply of new listings outpacing sales, leading to lower prices than anticipated.

In summary, the 2023 Toronto real estate market, as per CMHC, is a complex mosaic of growth, new listings, and subtle shifts, with various factors at play influencing housing starts, prices, and rental market conditions. Navigating through this landscape necessitates a thorough understanding and strategic approach towards investment and development in the GTA's housing market.

Regional Insights: City-by-City Breakdown

The Greater Toronto Area (GTA) is a mosaic of diverse cities, each with its unique real estate dynamics. To truly understand the GTA's housing market, it's crucial to delve into a city-by-city analysis. Here's a breakdown of some of the key cities within the GTA:

Toronto housing insights:

• The benchmark single-family home in Toronto increased by 4.1% year-over-year to $1,365,200 in August 2023.
• Toronto's benchmark townhouse price rose by 1.4% year-over-year to $845,600 in August 2023.
• The benchmark condo price in Toronto saw a decrease of 1.2% year-over-year, settling at $717,600 in August 2023.
• Overall, Toronto's benchmark composite home price experienced a 2.5% year-over-year increase, reaching $1,141,400 in August 2023.
• The average rent for an apartment in Toronto surged by 8.7% year-over-year, averaging $2,898 for August 2023.
• Toronto's housing market, as indicated by the Toronto Regional Real Estate Board (TRREB), suggests that the average price of resale residential homes in August 2023 was $1,141,400, marking a 2.5% increase compared to the previous year.

Ontario housing insights:

• The benchmark single-family home sale price in Ontario increased by 1.9% year-over-year to $993,500.
• Ontario's row/townhouse sale price saw a rise of 0.4% from the previous year, reaching $726,200.
• The benchmark condo sale price in Ontario decreased by 1.7% year-over-year, settling at $647,000.
• The average home sale price in Ontario experienced a 1.0% year-over-year increase, averaging $908,000.

Other GTA Regions:

While Toronto experienced certain price dynamics, other regions within the GTA, such as Mississauga, Brampton, and Vaughan, might exhibit different trends. Factors like infrastructure developments, local policies, and community growth can influence these regional variations.

In conclusion, while the GTA as a whole provides a broader picture of the housing market, understanding the nuances of each city or region is essential for potential buyers, sellers, and investors. This city-by-city breakdown offers a more granular view, helping stakeholders make informed decisions in the Toronto real estate market.

Diving Deep: Property Type Analysis

According to Statistics Canada, the national new housing price index edged up by 0.1% month over month. Ottawa recorded the most significant year-over-year decline in new home prices at -3.9%. This decline is attributed to higher mortgage rates affecting the new housing market in Ottawa. To truly grasp the intricacies of Toronto real estate market, it's essential to delve into the performance of different property types. The real estate market in the GTA is multifaceted, and each property category provides a unique insight into the overall market dynamics.

1. Detached Homes

Average Selling Price (August 2023): $1,416,366

Year-over-Year Change: +2.7%

Detached homes remain a cornerstone of Toronto's housing market. Their year-over-year growth of 2.7% signifies their enduring allure in the GTA, especially among families seeking space and privacy.

2. Semi-Detached Homes

Average Selling Price (August 2023): $1,067,980

Year-over-Year Change: +7%

The semi-detached segment has shown remarkable resilience and growth. A 7% year-over-year increase indicates a rising demand for these homes, possibly driven by their blend of affordability and space.

3. Freehold Townhouses

Average Selling Price (August 2023): $1,022,680

Year-over-Year Change: +3.6%

Freehold townhouses, offering a mix of community living with the perks of property ownership, have seen a steady growth of 3.6% year-over-year. Their appeal is evident among those who seek a balance between condos and detached homes.

4. Condo Apartments

Average Selling Price(August 2023): $705,572

Year-over-Year Change: -0.8%

Condo apartments, while popular among urban dwellers and investors, have experienced a slight dip. The 0.8% decrease in average prices might be attributed to market adjustments and changing buyer preferences.

Who’s Buying Toronto Real Estate: Trends and Demographics

Understanding who is actively participating in the Toronto real estate market is crucial for both buyers and sellers. The market dynamics have shifted over time, influenced by various economic and legislative changes. Here’s an in-depth look at the key demographics currently driving the Toronto housing market:

1. Upsizing Buyers

• Upsizing buyers are a significant force in the Toronto real estate market. They typically look for single-detached homes, which have shown considerable year-on-year price increases.
• This group often explores secondary markets like Mississauga, Hamilton, Brampton, and Burlington, seeking more space and affordability outside the city core​​.

2. First-time Homebuyers

• First-time buyers, particularly millennials, are a notable segment, though their market share has declined.
• High housing prices, stringent mortgage stress tests, and the necessity of a substantial household income have made it challenging for first-time buyers to enter the Toronto market​​.

3. Foreign Investors and the Impact of Legislative Changes

• Foreign investors have historically been a part of Toronto's real estate landscape. However, recent legislation, including the foreign buyers' ban and anti-flipping tax, aims to shift the demographic away from foreign investment.
• The long-term impact of these legislative changes on the market composition remains to be seen​​.

4. Multi-property Investors

• A significant market segment in Toronto consists of investors and multi-property owners.
• These investors have been increasingly active, accounting for a substantial portion of Ontario’s homebuyers, particularly in Toronto​​.

5. Immigration and Out-of-province Migration

• The continual influx of immigrants and migrants from other provinces contributes significantly to housing demand in Toronto.
• Despite housing affordability challenges, Toronto remains a top destination for new immigrants and Canadians relocating from other provinces​​.

6. Economic Factors Influencing Buyer Demographics

• Economic conditions, including job opportunities and wage growth, play a crucial role in shaping the buyer demographics in Toronto.
• The city’s status as an economic hub attracts professionals and young families looking for career advancement and a vibrant urban lifestyle.

The Toronto real estate market showcases a diverse buyer landscape, with each demographic contributing to its dynamism. From upsizing families to investors, and from first-time buyers to new immigrants, each group's unique needs and capabilities shape the market's trends. Keeping abreast of these changing demographics is essential for anyone looking to understand or participate in the Toronto housing market.

Expectations for the Toronto Housing Market

The Toronto housing market has been experiencing a series of fluctuations, influenced by various economic and policy factors. As of August 2023, the average home price in the Greater Toronto Area (GTA) was $1,082,496, marking a decrease of 3% compared to the previous month. However, when compared to the same period in the previous year, there was a slight increase of 0.3%.

First-Time Home Buyers:

• 46% of first-time home buyers in Toronto are millennials, indicating a significant portion of the market is driven by this demographic.
• The average age of first-time home buyers in Toronto is 33.
• The average household income of first-time home buyers in Toronto is $125,000, down 7% from 2022.

Market Trends and Forecast:

• The Toronto housing market has experienced significant changes due to economic and policy factors.
• The pace of sales growth observed earlier in the year has somewhat stalled, likely influenced by the Bank of Canada's rate tightening cycle.
• The MLS® Home Price Index Composite benchmark registered a year-over-year increase of 1.3%, and the average selling price experienced a 4.2% uptick compared to the previous year.
• Housing affordability will remain a central concern, with potential policy interventions and initiatives aimed at enhancing affordability.
• The average price of a home in the GTA is projected to decrease by about 12% over the following year.
• Amid rising interest rates and a potential recession, a modest decline of 3.3% in average residential sales prices across Canada is anticipated in 2023.

Driving Forces:

• Bank of Canada's Rate Hikes: The rate hikes in June and July 2023 have impacted the housing market, causing the Canadian prime rates to rise from 6.70% in June 2023 to 7.20% by July 2023. This has affected variable mortgage rates, leading to extended mortgage amortizations for many Canadians.
• Market Conditions: The current market is balanced, with a Sales-to-New-Listings Ratio (SNLR) of 43%. An SNLR between 40% and 60% indicates a balanced market. The continuous tumble in Toronto home prices can be attributed to high mortgage rates and tighter budgets among home buyers.
• Sales and Listings: There were 5,294 home sales in the GTA in August 2023, a decrease of 6% from the previous year. However, new listings have increased by 16% year-over-year.
• Regional Variations: Different regions within the GTA have experienced varied price movements. For instance, the City of Toronto saw home prices decline by 6% compared to the previous month and 2.5% year-over-year. In contrast, regions like Brampton and Mississauga witnessed different price dynamics.
• Future Outlook: The recent rate hikes by the Bank of Canada have already shown their impact on Toronto's housing prices and sales. The slowing demand, indicated by an SNLR hovering near 40%, suggests potential further weakening in the market. However, the pause in another rate hike in September 2023 might offer some relief.

In conclusion, while the housing market Toronto has shown signs of cooling, various factors, including economic policies, regional variations, and property type preferences, continue to shape its trajectory. For those looking to purchase a home, it's essential not to focus solely on "timing the market." Instead, understanding the long-term trends and ensuring affordability based on one's financial situation is crucial.

Deciphering the GTA Housing Tapestry with Pine

The Greater Toronto Area (GTA) housing market showcases a blend of stability and regional diversity. In August 2023, the average GTA home price was $1,082,496, a slight 0.3% year-over-year increase, indicating a stable long-term trend amidst short-term fluctuations. Different regions, from Toronto to Brampton, presented varied market dynamics, emphasizing the importance of localized insights. Influences like the Bank of Canada's rate hikes and post-pandemic work trends have shaped the market's trajectory.

As potential buyers and sellers navigate this intricate landscape, partnering with a trusted mortgage provider like Pine can offer tailored solutions and guidance. With Pine's expertise, navigating the GTA housing market becomes a more informed and confident journey.