Market Pulse

As the sun sets on a sluggish 2023, the Toronto real estate market records its lowest sales in a decade, perpetuating the slowdown trend started in 2022. There was a glimmer of recovery in Q2 as interest rate hikes temporarily buoyed the market. Looking ahead, 2024 is poised to be a year of resurgence in real estate for a multitude of reasons.

Interest Rate Cuts Coming?

Economies worldwide show signs of slowing, often a harbinger of forthcoming interest rate adjustments. This suggests the Bank of Canada might slash rates in 2024, although such decisions hinge on dynamic economic conditions and inflation metrics. Current Canadian inflation data indicate that while high mortgage rates could keep inflation elevated, a rate cut is still on the table.

Lenders Lowering Mortgage Rates Ahead of 2024 Market

Lenders have started to reduce mortgage rates, signaling a consensus that interest rate cuts are imminent. This proactive adjustment is set to rejuvenate the buyer’s market. With the BoC anticipated to cut the interest rate in 2024 and major banks already lowering mortgage interest rates on some mortgage terms, it is highly likely more buyers will come out in 2024. But what about supply?

More Immigration, More Housing Problems

Ontario’s population burgeoned from October 2021 to October 2023, with the latter year witnessing a steep increase in growth. This swell is partly due to eased COVID-19 restrictions, stimulating migration flows. With more people than ever entering Ontario, the housing situation is critical. Demand is high, but supply is short. New home construction can help with the supply issue, but there are other issues to contend with in building new homes.

If You Build, They Will Come…But Are We Building?

Ontario is a cornerstone of Canadian housing starts, yet trends in Toronto are troubling, with SAAR housing starts plummeting by 39%, particularly in multi-unit projects. Although year-to-date starts in 2023 outpaced 2022 by 17%, the decline in recent months raises concerns. With housing starts slowing down, this could exacerbate housing market pressures, especially given the high rate of immigration and population growth in the region. It’s no surprise that there are houses that are filled with people in every room. There are not enough homes for everyone at this time. And some have blamed this on housing foreign investors, but how has their ban played out this year?

Foreign Buyer Ban – A Year Later

Ontario’s foreign buyer ban has been in effect for a year with seemingly limited impact. The proportion of non-resident ownership in the housing market is not large enough to have a significant effect on house prices. This legislation is seen as the “politically correct” move but fails to address the root cause of the housing affordability crisis, which is the lack of housing

supply. The ban may also discourage investment needed for housing development, potentially leading to a decrease in housing supply and higher housing costs in the long run. With the foreign buyers gone for a year and still no significant change, another avenue to tackle housing affordability in Ontario can actually be found on an app on most of our phones.

Airbnb’s Future Is Up in the Air?

The Canadian government plans on introducing new rules targeting Airbnb units. The exact impact of these new rules on the short-term rental market in Toronto, including Airbnb, is yet to be seen, but it’s clear that the government is taking steps to ensure that housing is used more for living than as an investment or income property. With Airbnb crackdowns coming, it could provide a morsel of help in the housing supply by providing homes for people to permanently live in instead of just staying for a short time in an overpriced stay.

Final Thoughts

With demand ever increasing, and supply not keeping pace, the narrative remains unchanged in Ontario: there simply aren’t enough homes to keep up with the demand. With the supply crunch, potential interest rate cuts from the Bank of Canada, and dropping mortgage rates from major lenders, it is highly likely that property values will increase this year. We may never see the housing market increase at the rates we saw during 2020 and 2021 (there were some months where we saw a 10% increase in property values!), but higher prices and more competition are on the horizon for the GTA housing market as long as the interest rate cuts come.

A Year of Challenges and Adaptation

The 2023 housing market in the Greater Toronto Area (GTA) was a year marked by resilience amidst evolving economic factors. As the year progressed, the market reflected the complexities of global financial trends, shifting policies, and a populace adapting to new norms post-pandemic.

Cooling Measures and the Interest Rate Effect

Following a period of unprecedented growth, the GTA housing market began to show signs of cooling. The Bank of Canada’s interest rate increases, designed to temper inflation, led to heightened borrowing costs. This shift made an immediate impact, as prospective buyers recalculated their budgets and potential homeowners reconsidered their purchasing timelines.

A Shift in Demand

The market’s response to the changing economic landscape was evident in the shifting dynamics between buyers and sellers. The early part of the year saw sellers holding the advantage as buyers competed for limited inventory. However, as the year unfolded, the balance began to tip. Inventory levels rose, giving buyers more options and the leverage to negotiate more aggressively.

The Rental Market Reaction

The rental market in the GTA mirrored the fluctuations of the housing sector. As buying a home became less accessible for many, the demand for rental properties surged. This uptick was further exacerbated by the return of international students and immigrants, which had previously been dampened by pandemic-related travel restrictions.

Looking Ahead

While the market faced its challenges, the fundamentals of the GTA’s housing sector—strong demand driven by immigration and a robust economy—remained intact. As the year closed, there was cautious optimism. Market experts looked to policy adjustments and economic shifts, predicting a stabilization of the housing landscape in the years to follow.