A Historical Perspective of the Greater Toronto Housing Market

Has the Toronto housing market always been expensive?

It is hard to fathom that the average sales price for a detached house in the city was around $300,000 in 2004. Nearly 20 years later, that figure has shot up to around $1.3 million – and rising.

How time flies.

How the Pandemic Changed the Greater Toronto Housing Market

Before the pandemic, Greater Toronto Area (GTA) home prices were based on their distance to downtown, and the price gap between houses in the suburbs and downtown was significantly higher. Of course, the pandemic-era housing boom sent home prices in Toronto and surrounding areas to the moon, with suburbs seeing dramatic valuation gains. The gap narrowed rapidly during the pandemic as preferences for living in less congested and less expensive areas amplified.

This was seen not only in Toronto but elsewhere throughout the country. Moreover, demand for residential properties in suburbs and rural communities also skyrocketed among first-time homebuyers as the further they moved from downtown, the higher the possibility of finding a humble abode they could afford.

Today, even as the Bank of Canada (BoC) raises interest rates to their highest levels in more than two decades (more on that later), the GTA has maintained its upward trend in the current post-crisis environment without any respite in sight. But when it comes to Toronto, data suggest that many households prefer to live in the city, even if it comes with a premium.

At the same time, the dynamic of the GTA housing market has changed significantly since the COVID-19 public health crisis. Since remote work became a norm, renting or buying property closer to downtown was not necessarily a significant advantage anymore. Gyms, restaurants, salons, and other similar establishments had to shut down during COVID. The downtown charm wore off quickly, and people who could work and study remotely began looking for housing in the suburbs as they were far more affordable and typically more extensive than housing options available downtown.

Fast forward to the post-crisis climate, the cost of living through the roof has resulted in many restaurants witnessing fewer customers and officials urging companies to mandate a return to the office to save downtown businesses. Suffice it to say, the downtown core is not what it used to be, despite everyone opening their doors and trying to reignite some semblance of normalcy.

Bank of Canada and Interest Rates

It might seem counterintuitive, but the central bank’s campaign of rate hikes forced buyers to retreat to Toronto. Since residential properties remain above-trend throughout the GTA and elsewhere across the Ontario real estate market – and offices are forcing employees to return to the office – scores of families are coming back.

Meanwhile, the BoC’s higher-for-longer interest rates will continue to weigh on the mortgage market. Mortgage rates have increased significantly for borrowers, and research has confirmed that this will continue to be a notable problem for many households for years to come. The current situation has forced a plethora of prospective homebuyers to sit on the sidelines. Should the BoC pull the trigger on one more rate hike amid a reacceleration in inflation, it could result in a decrease in listings, leaving prices to be flat and elevated.

A Preview of the Future of Toronto Real Estate

A recent RE/MAX Canada report projected that housing prices are expected to trend sideways until the end of this year because there is a lack of inventory in the GTA housing market. As interest rates continue to be at their highest level in more than 20 years, this fall’s real estate industry will be soft as economic and financial uncertainty has made both buyers and sellers hesitant to make any big decisions.

Prospective sellers are holding back from listing their homes, and even new construction projects have taken a back seat as homebuilders face the problem of high costs.

However, a slow fall season could indicate a more active start for the Greater Toronto housing market, but this remains to be seen and is highly dependent on what the Bank of Canada does in the coming months. One hopeful factor is the expected number of immigrants to Canada, most of which will land in Toronto. This could potentially shake the market, and a scarcity of housing stock could widen the gap between the demand and supply and, once again, force housing prices to jump.

“We’re at a crossroad and the biggest question remains, where do we go from here?” says Elton Ash, Executive Vice President of RE/MAX Canada.