Ontario is one of the most desirable places to live not only in Canada, but for many people across the globe. Be it housing in the country’s financial capital (Toronto) or the nation’s capital (Ottawa), many homebuyers are keen to plants roots in this province, and this is weighing on the Ontario real estate market, impacting price appreciation and inventories.
Despite the tepid slowdown in sales activity in Ontario’s housing industry, it continues to be one of the hottest in Canada. Many might attribute this to Toronto and Ottawa skewing the numbers, but it turns out that young families, professionals and first-time homebuyers want to live anywhere in the province, whether in the smaller local markets of Northern Ontario, or outside the Greater Toronto and Hamilton Area (GTHA).
Now that Canada’s borders have reopened, and the country welcomes scores of newcomers, there is going to be greater demand and competition for shrinking supplies. So, how many residential properties are going to be needed over the next several years? Try one million.
Ontario Housing Market: Over 1 Million Homes Needed Over the Next 10 Years
With housing supply failing to match current demand levels, and Ontario’s population forecast to grow by more than 2.2 million people over the next decade, it is estimated that the nation’s most populous province will need approximately one million new homes by 2030, says a new report.
After combing through the Ontario Ministry of Finance’s housing data, the Smart Prosperity Institute and Ontario Home Builder’s Association arrived at this figure. The study predicted that 910,000 homes would be necessary for new families, including 195,000 high-rise apartments and 715,000 in all other forms of housing.
Moreover, another 65,000 units would help with today’s inventory deficit. Plus, about 25,000 units would offer the province some cushion to respond to any unforeseen circumstances. It’s a lofty, but necessary goal to meet.
“The goal of building one million new homes in the next 10 years presents a challenge for Ontario,” said Mike Moffatt, the senior director of policy and innovation at Smart Prosperity Institute, in a statement. “However, the prize is substantial: ensuring an adequate supply of high-quality available and attainable housing, while at the same time driving economic prosperity and enabling climate action. Failure to do so will make it impossible for Ontario to attract and retain the talent it needs to compete in the global economy.”
But while new housing construction has picked up considerably over the last 12 months across the country, residential activity has been relatively calm in Toronto. As a result, housing starts have only risen 1.4 per cent compared to the average from 2015 to 2019. These recent figures also fall short of the national home building growth of 26 per cent between 2015 and 2019.
What about the rest of the province? Are other regions growing at a more sustainable pace? Let’s take a look at the latest data.
October Snapshot of the Ontario Housing Market
In October, residential sales tumbled 12.7 per cent year-over-year, totalling 21,674 units, according to the Ontario Real Estate Association (OREA). This was still the second-best performance in the month of October for the province’s real estate market. The average selling price of a home soared at an annualized rate of 22.9 per cent to $912,763 in October.
It all boils down to supply in the Ontario housing market, much like other real estate market across Canada. OREA data show that new residential listings plunged 26.5 per cent in October from the same time a year ago, numbering 24,720. This was the lowest number of new listings added in the month of October in a decade. Active residential listings also fell sharply by 43.5 per cent year-over-year in October. The last time they were this low in October was three decades ago.
On a historical basis, new listings were 14 per cent below the five-year average, while active residential listings were 52 per cent below the five-year average.
Months of inventory slipped to 0.8 in October, down from 1.3 months at the same time last year. This is also below the long-run average of 2.7 months for this time of the year. This is a widely used statistic since it represents the number of months it would take to exhaust today’s supply at the current rate of sales activity.
Although 2021 has seen strong new housing construction numbers, the pace of growth slowed down in October compared to one year ago. According to Canada Mortgage and Housing Corporation (CMHC), housing starts advanced more than 66,000, down eight per cent from the end of October 2020.
Is a Correction Coming to the Ontario Real Estate Market?
Moody’s Analytics released an eye-opening report that suggested Ontario is the most overvalued real estate market in Canada. According to the report, the provincial housing industry was 22.6 per cent overvalued in the second quarter of 2021, and prices are expected to swell 1.3 per cent next year.
The financial services firm also listed Nova Scotia (15.3 per cent) and Quebec (14.3 per cent) as two other overvalued markets in Canada. Notably, Alberta (-19.8 per cent), Saskatchewan (-16 per cent), and Newfoundland and Labrador (-10.3 per cent) were three undervalued real estate markets during the April-to-July period.
Does this mean a correction is coming? Whether a result of rising interest rates or falling sales activity, it’s hard to say whether a correction could be on the horizon, and if so, what the precipitating factor will be. Still, housing experts say the province could alleviate the situation within these tight, overpriced markets by changing outdated zoning laws or cutting red tape that would allow for more housing development.
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