Is the Toronto housing market about to take off?

Activity has picked up even before expected rate cuts arrive

Is the Toronto housing market about to take off?

Interest rates remain high and homebuying activity is still well below the levels of the COVID-19 pandemic – but there are early signs that Toronto’s housing market could be set for a thaw in 2024.

January home sales were up by 37% across the Greater Toronto Area (GTA) compared with the same time last year, according to the city’s regional real estate board, with month-over-month sales booming by nearly 23%.

That huge unexpected uptick arrived as fixed interest rates dipped slightly and consumer confidence began to strengthen around possible Bank of Canada rate cuts down the line.

A brisker clip of activity has been noticed among the mortgage broker community in the region, too. Chris Bargis (pictured top), broker and team lead at Mortgage Edge, told Canadian Mortgage Professional that early indicators suggested a stronger market in the first quarter of this year than the sluggish pace of early 2023.

“I did expect that January and February were going to be slightly slower months. That has not been the case,” he said. “I’ve been noticing buyer activity has been picking up. It almost feels like the market is somewhat healthy.

“I do frequently touch base with our referral partners just to see what they’re seeing on the ground level, and it almost feels like whenever we’re seeing multiple offers, there’s probably anywhere from maybe five to 10 bidders on average on a lot of the purchases that come in. And that feels very normal.”

‘Healthy’ activity prevailing in Toronto market after lengthy freeze

That level of activity marks a welcome change from the frenzied pace at the height of the pandemic, when would-be buyers faced huge competition and bidding wars as they attempted to secure a purchase.

While present across most major cities in Canada, that trend was most pronounced in Toronto and Vancouver, traditionally the country’s two hottest housing markets.

After a prolonged freeze in the market as rates began to spike during the past two years, Bargis said borrowers appear to have slowly become accustomed to the current rate environment.

“Rates are still high, but we’re not seeing buyers taking a break the way they were for quite some time in 2022 and for a part of 2023,” he said. “So I actually think this is a relatively healthy market, and we’ve seen activity pick up on the buyer front.”

What will happen to the Toronto housing market when rates fall?

The Bank of Canada is expected to leave its benchmark interest rate unchanged in next week’s announcement (March 6), although markets believe it will begin trimming rates either by April or midyear.

Could that heat up the Toronto housing market further and impel a wave of buyers to step off the sidelines?

“I do think that when we start to see rates come down as anticipated, demand is naturally going to pick up. You make the cost of borrowing less expensive, that’s going to drive demand for borrowing,” Bargis said.

“What the Bank of Canada is trying to do is sort of gradually inch towards that inevitability by pushing these rate declines as far out as possible, and they will probably do it in a very smooth fashion.”

High immigration targets and a continuing lack of housing inventory mean there’s plenty of pent-up demand waiting to be unleashed as soon as rates start to fall.

That means the Bank’s strategy will be designed, Bargis said, to avoid a rapid jump in homebuying activity, with the central bank focused on a careful approach to bring the economy back into balance.

“We’ve been listening to a number of chief economists from the big banks and what we’re hearing is that we’ll probably see a 1% drop between now and the end of the year, perhaps another 1% drop again between the beginning and end of 2025,” he said.

“And so they hope that that will lead to more measured changes in demand. But I think that that is an inevitability: I think things will pick up even further, hopefully not to a stage where we start seeing aggressive, multiple offers on properties, but rather a further balancing of the marketplace.”

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