Toronto housing market – what's next?

Activity is ramping up across the GTA – but challenges remain

Toronto housing market – what's next?

Toronto’s housing market has picked up pace in recent weeks after witnessing a prolonged cooldown amid the rising-rate environment of the past year.

Sales increased last month on both an actual and seasonally adjusted basis compared with March, according to the Toronto Regional Real Estate Board (TRREB), while the benchmark price for a home also rose over the previous month.

Still, could that recovery be compromised by choppy economic waters ahead? Inflation inched upward in April for the first time since last June, with that development – and a labour outlook that’s proven more resilient than anticipated – increasing market expectations of another Bank of Canada rate hike this year.

Jason Mercer (pictured top), TRREB’s chief market analyst, told Canadian Mortgage Professional that despite the uncertain economic climate, borrowers are still likely to face a more positive landscape moving into next year.

“Obviously, we continue to watch inflation vis-à-vis the Bank of Canada decision on borrowing costs. So the labour market remains strong, and there’s obviously still substantial demand for consumer goods and services – that’s provided support for inflation despite higher borrowing costs,” he said.

“I think the consensus view is that while it’s possible we could see further tightening on the part of the Bank of Canada, [in the] medium-term, the expectation still is that we’ll see lower borrowing costs as we move into 2024.”

What strain are higher interest rates putting on the GTA housing market?

Even with interest rates remaining elevated, borrowers appear to be adjusting to the new reality and beginning to re-enter the market, Mercer suggested.

“We’ve gone through a year now of substantially higher borrowing costs. And despite that, we’re starting to see more people moving back into the housing market and actually starting to see tighter market conditions and upward pressure on home prices,” he said. “And so what generally happens in these types of cycles is that people take an initial step back and sort of reassess their situation in the market.

“It doesn’t necessarily mean that they’re not going to purchase a home or don’t intend on purchasing a home, it’s just that that purchase may now look different – they may now need to purchase a different type of home in a different area at a lower price point to mitigate the impact of higher borrowing costs.

“I think more and more households have gone through that calculus and are now moving back into the marketplace.”

In its latest Financial System Review, the central bank indicated its growing concern at the number of Canadian households having to shoulder larger debt burdens as a result of higher borrowing costs.

Asked whether a sharp increase in monthly payments for many borrowers could lead to an uptick in distressed listings, Mercer noted that over 12 months of higher interest rates have not seen a significant material rise in sellers being forced to list their homes.

“There’s been a substantial number of renewals over the last year as we move through this higher-interest-rate environment, and we haven’t seen a spike in listings,” he said. “In fact, we’ve seen the opposite. If you look at our April numbers, we’re seeing listings down about 40% on a year-over-year basis, whereas sales were down only by 5%.

“So in fact, what we’ve seen is a tightening in market conditions, far from the impact of a glut of inventory. So far what we’ve seen is fewer listings and an improvement in demand.”

What other challenges are GTA homeowners facing?

In remarks accompanying the release of its April figures, TRREB chief executive officer John DiMichele said the government should be providing further support for households in the current environment by lowering taxes to help them cope.

“Lack of affordability in the GTA ownership and rental housing markets has been well-documented,” he said. “On top of this, households faced with steep price increases for basic goods and services have had to make tough decisions to adapt.

“It is time for governments to make tough choices as well. On average, every dollar a household makes in the first half of the year goes to taxes. Governments need to provide more value for every tax dollar they collect and should be looking for ways to reduce tax burdens moving forward.”

Make sure to get all the latest news to your inbox on Canada’s mortgage and housing markets by signing up for our free daily newsletter here.