According to Reuters, Canadian analysts predict the national slowdown to last until 2023, with a possible rebound in 2024. Low loan rates, which were recently boosted by the Bank of Canada, fueled the housing bubble during the epidemic.
Projections of the magnitude of the loss are worsening, with fresh estimates hovering around 7.8%, compared to the 2.2% drop expected only a few months ago. This is the most significant price drop since the Canadian Real Estate Association began collecting data in 2005.
In contrast, prices in major cities such as Toronto and Vancouver are predicted to fall by 8.5% and 7.3% in 2023, after rising by 13% and 10.6%, respectively, in 2022.
The average price of a home in Toronto remains mostly unaffordable.
Despite recent decreases in property costs, houses in Toronto remain out of reach for median household incomes. Even though increasing housing prices have recovered slightly from their lows in recent months, the affordability dilemma remains in the public spotlight.
Despite the decline, most Toronto housing remains out out of reach for median-income households. According to NBC, home affordability in Toronto has hit its lowest point in 40 years.
The new analysis, headlined “Homes Affordability: The Worst Deterioration in 41 Years in Q2 2022,” focuses heavily on the affordability of Canadian housing. The affordability reduction in Q2 2022 is the sixth consecutive quarterly decline.
Data Dive: Globally Comparing Toronto Real Estate
Housing affordability in Toronto has been gradually declining in comparison to global markets. According to NBC, downtown Toronto housing prices have hit $860 USD per square foot, surpassing previously pricey locations such as Seattle.
According to the research, the Greater Toronto Area’s affordability has deteriorated the most since 1981. Mortgage payments for condominiums and non-condos have risen to 90% of the typical household income.
However, the average monthly rent appears to have peaked, decoupling from median mortgage prices and remaining stable since roughly 2017. An annual salary of $265,664 CAD is necessary to finance a typical property in Toronto.
The figures shown above highlight various factors that influence the GTA housing markets. This populous region of Canada is not only one of the largest for business, industry, and job development; it is also seeing consistent population expansion.
The Housing Market Divides Canadians
Canadian homebuyers are roughly equally optimistic in the country’s housing market, with 39% as confident as before the epidemic and 37% less confident. 54% are still thinking about purchasing or selling a property in 2022.
“The inter-provincial migration trend that we started seeing in the summer of 2020 is still extremely strong and is likely to continue into 2022,” says Christopher Alexander, REMAX Executive Vice President and Regional Director.
According to the REMAX Housing Market Outlook Report, some Canadians remain quite optimistic in Canada’s real estate and housing markets, with 49% stating that real estate is still one of their greatest investment chances in Canada.
Will it be a good time to buy a condo in Toronto in 2023?
Many purchasers are attempting to purchase now in order to prevent rising interest rates, which will likely make bigger mortgages more accessible in the future. However, if you wait for reduced pricing when making your buy, you may miss out.
Properties can sell quickly for sellers if a buyer is ready to step up. Because property in the GTA is difficult to come by and has a lengthy history of appreciation, prices are expected to rise more in the next year.
Because interest rates are likely to rise further, it’s difficult to judge whether now is a good time to purchase into Toronto’s real estate market, even though prices have risen from prior lows. While the market generally favors summer purchases, Torontonian investors remain wary.
The Suburban Housing Bubble in Toronto is a critical issue.
In February 2021, there were several symptoms of the Toronto housing bubble. Many large bank analysts questioned if housing prices had risen considerably in recent years owing to speculation in March 2021. However, no legislative amendments were made.
Tiff Macklem, Governor of the Bank of Canada, has been cited as stating, “We need all the growth we can get.” This remark was in response to concerns raised about the considerable surge in home prices during the epidemic.
Unlike in other nations with overpriced property, demand for real estate in Canada does not appear to be reducing, which has led to recent price increases in locations like Toronto and Vancouver, where housing supply is limited.
Because of these sorts of variations, as well as the gap between demand and availability, the prospect of abrupt shifts in customer attitudes becomes extremely probable. It will be up to the Bank of Canada and the Canadian government to put new regulations in place to combat these beliefs.
What are the implications for Canadian investors?
The recent comeback in real estate prices is excellent news for investors who purchased at the bottom of the market, but the crisis may not be ended, as real estate specialists and real estate brokers expect further national price declines until 2023.
Buyers hoping to get in on the ground floor may be in luck, since prices are predicted to begin rebounding around 2024. It all depends on how the Bank of Canada manages its reaction to the affordability challenge.
In general, Canadian investors should avoid Canadian real estate investment trusts since they will be heavily vulnerable to the ongoing national slump. Buyers of genuine real estate in Toronto and Vancouver, on the other hand, may experience some returns.
What Canada’s Central Bank Has to Say About Real Estate
According to the Bank of Canada, home price responses to policy changes are often delayed, taking years to achieve the anticipated adjustment. New research, however, shows that the reaction to recent rate rises may be faster than projected.
Between 2001 and 2019, the Bank of Canada observed that “a one-standard-deviation contractionary monetary policy surprise decreases housing list prices by 0.2%-0.3% within two weeks.”
In other words, the targeted changes in house prices and buyer mood may occur considerably more quickly than previously anticipated, making recent policy changes potentially useful for short-term price adjustments.
The remainder of 2022 is likely to see continued price declines across much of Canada. Experts predict that housing prices in more densely populated locations such as Toronto and Vancouver will continue to recover marginally.
Price reductions are unlikely to help much with affordability difficulties, given property prices in Canada are still orders of magnitude higher than median household earnings.
Nonetheless, the prospect of a price rebound in 2024 appears to be enough to keep around half of Canadian investors optimistic about Canadian real estate. However, experts advise care while investing, particularly in vulnerable securities such as REITs.