Toronto housing market – just how hot will it get?

The city has seen stunning price growth in recent times, with little sign of an imminent cooldown

Toronto housing market – just how hot will it get?

It’s official: having set a blistering pace throughout the COVID-19 pandemic, Toronto’s housing market is now the hottest in Canada, after recently usurping Vancouver for the dubious honour of the nation’s priciest city to purchase a home.

How long can that surge continue? As housing inventory dries up and prices shatter existing records by the month, buying a property in the city is becoming an increasingly unattainable dream for many new entrants to the market.

The average price of a home in the Greater Toronto Area (GTA) is now a staggering $1.24 million, according to the Toronto Regional Real Estate Board (TRREB), a figure that has climbed 28% since the same time last year.

Those results showed an 18% decline in sales from the previous January (5,636 units in January 2022 compared with 6,888 a year earlier) – although TRREB emphasized that this year’s volume still represented the second strongest January in the city’s history.

In a recent study on how housing markets across the country are faring, RBC Economics noted stunning price increases for single-family homes in the Greater Toronto Area, with year-over-year prices up 36% (and more than 40% in the Durham and Peel regions).

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Writing in that report, senior economist Robert Hogue saw little reason to believe that Toronto’s breakneck pace will slow in the near future – although he did forecast that activity could moderate as 2022 progresses.

“We see little that will materially alter these trends in the near term,” he said, “though expect that higher interest rates will gradually cool things down later this year.”

Still, there’s another recent development that could have a significant bearing on the future trajectory of Toronto’s housing market: the announcement by the federal government that it plans to welcome around 1.5 million immigrants to Canada in the next three years.

That move will see 431,645 permanent residents arrive this year, increasing to about 447,000 in 2023 and 451,000 the following year, in a bid to address labour shortages and help spur Canada’s economic recovery from the pandemic.

Max Afzalimehr (pictured top), a Toronto-based broker with Syndicate Mortgages, told Canadian Mortgage Professional that with a majority of those immigrants likely to choose Ontario as their destination, Toronto should see sustained strong activity in its housing market.

That’s a trend that could offset the possible cooling effect of interest rate increases in the next year, he said, with supply issues also set to come into sharper focus as demand rises.

“There are significant increases in the interest rate, but that isn’t necessarily going to cool off the demand in my opinion,” he said. “Most [new immigrants] are going to land in Ontario because of the job opportunities in comparison to other provinces.

“Probably about 50-60% of them are going to land in the GTA, so there’s definitely going to be a greater demand based on the current housing supply and inventory. We’re going to see a continuous increase in the market for the years to come.”

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With a rate hike from the Bank of Canada widely anticipated in its next benchmark policy rate announcement in early March – and fixed rates also climbing steadily – could prospective buyers be rushing to avail of current low rates while they’re still around?

Afzalimehr said that while he had noticed a steady uptick in preapprovals since the beginning of the year, they weren’t necessarily linked to those impending rate hikes rather than, for instance, a desire to enter the market before home prices spike even further.

“It’s not really rate sensitive right now; it’s all about landing a property,” he said. “Unfortunately [with] a lot of the preapprovals that we’re giving out, clients are unable to find a property within the preapproval price, so they end up moving even outside the city or go to smaller towns.

“That leads to the next point – that we’re going to see a continuous surge in prices in the suburban [areas] and the outer cities.”

As for the prospect of a 2022 market that’s as hectic as the previous two years? Afzalimehr said that the only development that would be likely to put a dampener on things would be intervention by the federal government.

“The Canadian government is talking about taxing owner-occupied properties. That’s huge,” he said. “If that happens, there could be a shock in the market for a couple of years to come.

“Otherwise, if the Canadian government doesn’t get involved in the housing market in that sense, then we should still see continuous price growth.”