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What’s Happening With Toronto Real Estate In 2022?

by David Bico on 14 Nov 2022

The real estate market in Canada is notoriously inflated, with many experts saying that the housing market is in a bubble and is set for a major correction. As prices began to deflate across Canada, markets in large metropolitan areas such as Toronto continued to rise.

This trend has begun to reverse in recent months, with markets in Toronto and Vancouver experiencing decreasing home prices in the wake of rising mortgage rates and demand migration toward rented properties.

Despite all of this, affordability in the Toronto housing market remains low, with prospects for new home buyers pushing demand elsewhere in Canada. This is unlikely to change anytime soon, even as Toronto home prices continue to fall year-on-year.

Continue reading to see what’s up with Toronto’s real estate market, as well as information on the latest developments in the Toronto housing market.

October 2022 Toronto Real Estate Market Summary

There have been a number of developments in the Toronto market throughout 2022. We have seen a reversal of the overall rising trend that played out through 2021, although experts are saying Toronto home prices may rebound once more in the coming years.

  • The annual average selling price in Toronto decreased by 4% to $1,086,762 in September.
  • A large drop in sales activity and the first annual average price drop since 2019 indicates a continued downturn in the Toronto market.
  • The annual average price for detached homes dropped by 10% to $1.37M.
  • The annual average price for semi-detached homes dropped by 6% to $1.04M.
  • The annual average price for freehold townhouses dropped by 3% to $990k.
  • The annual average price for condo apartments jumped by 3% to $731k.

 

Demand is expected to continue tapering off as mortgage rates continue to increase. Experts say that this might create a good buying opportunity sometime in late 2023 or early 2024 when home prices begin to even out.

Home Price Overview

The population in Toronto is about 680,000, and Toronto has been ranked number 13 among the 100 most beautiful cities in the world. Accordingly, Metro Toronto house prices have experienced some increases, even during the pandemic.

The demand for detached homes is pushing more prospective buyers to reevaluate their own home sales. Condo Apartments are priced lower than home prices, and most people who plan on selling their homes may get a good chance to do so as a result.

Home prices have soared to new highs, and people are eager to move forward from the events of the pandemic. Some buyers looking into purchasing their first home may have to wait for a significant correction sometime in 2023 or 2024.

However, prairie provinces such as Alberta will likely have strong sales numbers due to investments in the energy sector, as well as a greater balance in overall supply. These conditions make their market more attractive than other areas of Canada.

Toronto Real Estate Market Highlights

Rising home prices in Metro Toronto have been reversing for the entire population. The rates on mortgages have increased dramatically from their lowest levels in recent years, leading to reduced mortgage demand.

Canada’s GDP continues to rise as employment levels increase and immigration rates remain steady. However, climbing mortgage rates and prices which far outstrip average salaries will continue to drive down overall demand.

Affordability issues with housing are expected to continue. Housing prices would need to fall by dramatic amounts in order to make them affordable for the average family. The federal government and BoC are unlikely to enact effective policy changes in the near future.

Construction of new houses also remains slow, with supply issues driving the majority of the downturn. New housing supply is unlikely to alleviate pricing issues in metropolitan areas such as Vancouver or Toronto.

Metro Toronto Condo Apartment Prices

Metro Toronto apartment prices were accelerating as of the beginning of 2021 with prices increasing dramatically. Condos are selling more than houses, and demand for condos is likely to remain high for the time being.

Apartments between $800,000 and $60,000 comprise almost all of the activity in Metro Toronto. Condo apartment supplies are plentiful, and developers are expected to start marketing large (2 or 3-bedroom) apartment designs in the future to satisfy buyer needs.

According to the Torontorentals.com GTA rent report for September 2022, the average condo in Toronto now costs almost 50% more each month than it did early in the previous year. The average monthly rent reached $2,963 in August of 2022.

There was also a 13.8% increase in average rent for apartments compared to the second quarter, as well as a 30% increase from the lows from September of 2021. The rent increases are largely driven by interest rate hikes and increasing demand for rental housing.

Detached House Prices In The Greater Toronto Area

Conversely, the price of detached homes in the GTA has gone down by 10% compared to last year, hitting $1,369,186. This is a mere 1% decrease from the previous month of August 2022, but prices are expected to continue falling in 2023.

The benchmark price for single-family detached homes in Toronto is greatest in the King and Richmond hill areas, and lowest in Innisfil and Brock. The prices are falling fastest in suburbs that are farthest from the city centre, partially due to increasing gas prices.

Very high detached home prices and steep price declines are driving the price decreases in some of Toronto’s most expensive neighborhoods. Prices are falling faster than the median annual household income, although affordability is not expected to improve much.

The scope of the price decline for detached homes is one of the largest seen in Canadian real estate history. Economists for major banks such as RBC and BMO aren’t expecting the bottom to be in for some time yet, although there may be a resurgence in 2023-2024.

What Is Driving The Average Price for Toronto Housing?

Since the pandemic, the Toronto housing market experienced changes in buyer demand caused by economic factors, lifestyle changes, and immigration. In Toronto, condo prices remain a buyer’s market while most other sectors are favoring sellers.

Many Toronto residents have recently chosen to move to rented apartments primarily because of affordability and proximity to the city centre. The trend towards moving out of the city is spreading as the demand for more land and green space increases.

Of course, one of the main factors affecting prices in the Toronto market is the increasing mortgage rates driven by rate hikes at the Bank of Canada. The condo market was able to soar throughout the pandemic due to low rates which are set to continue increasing.

Immigration and foreign investment is another thing slowing down the recent decline in Toronto housing prices. Although immigration is expected to stay at all-time highs for the foreseeable future, prices are expected to continue falling throughout 2023.

Still A Challenge for First-time Homebuyers

Toronto’s house prices are not affordable. First-time buyers earning $78,000 have a typical minimum mortgage of $320,000. In order to buy a condo with market value at $590,000 the homebuyer has to save around $270,000 in cash as well as the downpayment and closing costs.

This is simply unrealistic. Due to this disconnect, first-time buyers are largely priced out of the condo market, which is driving a migration toward rented properties, further decaying the housing demand and causing general decreases in house prices.

In some areas, such as the exurbs of Toronto, housing prices are actually falling faster than median household incomes. Although this sounds like good news for first-time buyers, the prices will need to continue falling dramatically for a long time before they are affordable.

Affordability in Toronto was the worst out of any Canadian city in 2021, with a 30.5% rate of unaffordability according to Statistics Canada. Similar numbers were reported in other major metropolitan areas such as Montreal and Vancouver.

Toronto’s Real Estate Market Risks

The CMHC says that the Toronto Stock Exchange may face a price correction. A Reuters study showed that more than 70 percent of investors are unsure about the risks they're facing. The report also noted that interest rate hikes could severely dampen housing prices.

As housing supply is far outstripped by demand, Canadian real estate investors have been treated fairly well by rising prices, but these prices are set to fall in the wake of increasing mortgage rates and decreasing housing demand.

The UBS Global Real Estate Bubble Index for 2022 indicates that Toronto could be in one of the largest real estate bubbles in the world. The index measures the rate of overvalued homes in various economies, with 1.5 indicating bubble risk. Toronto clocks in at 2.24.

Although this index does measure the risk of a bubble in the market, it cannot accurately predict corrections in housing prices. However, investors are still urged to exercise caution when buying into this possibly volatile market.

Toronto Housing Market Not Likely To Hit Bottom Until Spring

In August, GTA real estate prices rose for the first time in months, but a new report from RBC warns that the correction is far from over.

Assistant Chief Economist Robert Hogue warned clients back in September that anticipated interest rate hikes in the coming months would disqualify more buyers and shrink the size of mortgages available to others.

It will only exacerbate the housing correction, which has been underway since March and is unlikely to end until next spring.

“We think the market will adjust to higher interest rates by early 2023. Any recovery will likely take a few months to tighten demand-supply conditions, placing the bottom for prices around spring time (overall for Canada),” he said.

“We expect benchmark prices will be down approximately 14 percent from the recent peak nationwide. On a provincial basis, we project Ontario and British Columbia to record the largest peak-to-trough declines at negative 16 percent.”

Other Notes from The 2022 Canada’s Real Estate Market Outlook

The CMHC provides regular outlook reports on housing prices across Canada. Here are some of the highlights from the 2022 report:

  • Only 40% of Canadians trust Canadian real estate agents to advise them during the current market.
  • Many Canadians are moving toward building their own home or buying pre-construction properties.
  • Despite this, around 25% of Canadians are showing an interest in buying before mortgage rates rise even further.
  • Around 60% of Canadians are current homeowners. The 35+ age range is significantly higher at 70%. Millennials, however, are much lower at around 40%
  • Around 70% of Canadians maintain that rising prices are not having a major effect on their purchase decisions.

 

The CMHC also says that they expect prices, sales levels, and new construction to slow down in the coming months, but that the levels shall remain high through the rest of 2022. Homeownership affordability is also set to worsen due to rising mortgage rates.

Toronto’s Market At A Glance: What’s Coming Next?

While the composite benchmark price of a home in the Greater Toronto Area (GTA) is down 4.3% from last September, it remains quite high. Year-over-year activity in the housing market is being measured against 2021 figures that shattered all records.

Such dramatic yearly declines this September may have been due to last year's high sales volume and rapid price appreciation. While you might expect that such a huge cooldown would bring new postings to Toronto's housing market, it appears that this is not the case.

In the midst of increased sales in September 2021, new postings totalled a vigorous 13,494 - however that figure snuck past 16.7% last month, coming in at 11,237 properties in a definite sign that the city's real estate shortage isn’t ready to let up.

Many markets across Canada aren't expected to recover again at any point in the near future, with a new examination by RBC Financial matters showing that Ontario and BC  are probably going to see continued downward pressure on housing prices.

How Easy Is It To Buy or Sell Real Estate In Toronto?

It's been said that purchasing a house is one of life's greater choices, yet selling isn't something to be messed with either. In Toronto, sellers face one of the country's most cutthroat housing markets by a long shot.

In 2018, in excess of 77,000 homes changed hands, as per the Toronto Land Board (TREB), and that was a twofold decline from the previous year. Sellers and buyers of every flavor are faced with an overwhelming challenge when engaging with the Toronto market.

This is exacerbated by a lack of trust in real estate agents in recent years. This lack of trust is driven by a slew of sketchy behaviour being exhibited by real estate agents in a number of markets across Canada, including Toronto.

Inventory of Housing In Toronto

According to the CREA, it would take 2.7 months at the end of q3 2022 to sell current inventories of single detached homes. This number is referred to as “months of inventory”.

The months of inventory for semi-detached homes clocked in at 1.4, with condo numbers rising to 2.7. Condo apartments also rose sharply to 3.5.

Prices In Toronto Versus Greater Toronto Area

While prices in metro Toronto are still very high, prices in some areas of the GTA are not seeing the same activity.

Townhouse condos in Peel and York are the most reasonable, with average prices clocking in at $616,876 and $687,843. In Toronto, the typical cost was $744,092 back in August.

Will The Market In Toronto Continue Slowing Down?

Average sale prices in August were down around 20% since February. Experts agree that increasing interest rates are to blame for the decrease in housing demand. Rate hikes make mortgages more expensive and less attractive for new buyers.

Although some experts are expecting a reversal sometime between 2023 and 2024, it is likely that average prices for most Toronto area housing will continue to decline for the immediate future.

Is Now A Good Time to Buy Real Estate In Toronto?

With home prices on the decline, some people might think that buying is an increasingly attractive prospect. However, since mortgage rates are on the rise, the reality might be that most people are simply priced out of mortgaging a home in Toronto.

However, since mortgage rates are set to continue rising, buyers who are on the fence might want to get in while the rates are low. That being said, it is a deeply personal question that depends on your income and the affordability in areas you are looking into.

What Do The Experts Have To Say?

RE/MAX experts have been quoted saying "apart from Oakville and Muskoka, average residential sale prices in Ontario are likely to remain steady or decrease between two to 10 per cent in the fall months,"

RE/MAX has also reported that "the Greater Toronto housing market is expected to regain balance in 2023, albeit with low inventory continuing to place upward pressure on prices." In a recent report.

Christopher Alexander, president of RE/MAX Canada, has also mentioned that "While we are still facing significant housing supply shortages across the Canadian housing market, many regions are experiencing softer sales activity given recent interest rate hikes.”

Although this provides some relief for potential buyers, a continued decrease in housing prices may be bad news for current investors, especially with the price decline to continue through 2023 and possibly into 2024.

These kinds of price fluctuations are likely to continue as long as the housing supply in Canada remains low. Unless policy changes from the government or BoC can turn things around, it is likely that the market in Toronto will remain risky and unpredictable.



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