Precondo - Blog Post - Price Surges For Toronto's Real Estate Market This Holiday Season
Jordon Scrinko
Published by Jordon Scrinko
Last Updated On: October 28, 2024

Price Surges For Toronto’s Real Estate Market This Holiday Season

As Canada gears up for the holiday season, Toronto’s real estate market is seeing a unique trend. While typically a quieter time for property transactions, this year, market dynamics have led to notable price surges.

Toronto’s real estate has always been a cornerstone of investment, but what is truly driving this year’s spike?

Let’s dive into the factors reshaping Toronto’s market and what it means for buyers, sellers, and investors.

Toronto’s Capitalist Market Dynamics: A Foundation for Price Shifts

In Toronto’s capitalist economic framework, property prices are heavily influenced by market demand and supply. This structure allows for a dynamic pricing environment, where property prices are highly responsive to economic shifts and consumer interest.

However, recent changes, such as regulatory restrictions and economic adjustments, have added volatility to Toronto’s real estate scene. With both market resilience and vulnerability at play, it’s critical to understand the causes behind the surge.

5 Key Drivers Behind Toronto’s Real Estate Price Surge

1. B-20 Mortgage Restrictions: Tighter Lending, Higher Prices

Introduced in January 2018, the B-20 policy introduced stricter mortgage requirements, making it harder for buyers to qualify for loans. As a result:

  • Loan Availability: Buyers face more stringent pre-approval processes and stress tests, reducing their purchasing power.
  • Market Implications: With fewer buyers qualifying for high-value loans, the market has seen a constriction in mid-range property sales, leading to increased competition for affordable units.

Example: A buyer who could previously qualify for a $700,000 mortgage now may only qualify for $600,000, increasing demand for lower-priced properties and pushing up prices in that range.

What This Means for Buyers: Buyers need to be more financially prepared and may need to explore co-signers or larger down payments to secure desired properties.

2. Banking Sector Changes: Higher Interest Rates, Lower Affordability

B-20: Restrictions and Regulations

Recent moves by Canadian banks to raise interest rates have added pressure to the real estate market. With banks like Toronto-Dominion Bank and the Royal Bank of Canada posting record earnings due to international expansion, local mortgage rates are increasing.

  • Impact on Borrowers: Higher interest rates mean higher monthly mortgage payments, reducing affordability for new buyers.
  • Implication for Real Estate Market: As borrowing costs rise, fewer buyers can afford high-value properties, which could lead to slower growth in the upper market while increasing pressure on lower-priced homes.

Actionable Takeaway for Buyers: Consider locking in lower fixed-rate mortgages to hedge against future rate increases.

bank of canada

3. Tech Boom: Job Growth Spurs Property Demand

With global companies like Microsoft and Intel setting up shop in Toronto, the city has quickly become a tech hub. As job opportunities rise, so does the demand for housing, especially in neighborhoods close to tech offices.

  • High Employment Rates: Toronto’s tech industry growth is attracting talent both locally and internationally, creating a surge in demand for housing.
  • Neighborhood Impact: Areas close to tech hubs, such as downtown Toronto and the West End, are seeing some of the highest real estate growth rates.

Neighborhood Spotlight: If you’re looking to invest, consider neighborhoods near tech centers, which may see continued demand and appreciation.

4. Market Imbalances: Low Supply, High Demand

At the start of the year, the real estate market was promising with high listings. However, as prices surged, many prospective sellers chose to withdraw their listings, reducing available inventory.

  • Supply Crunch: Toronto’s market has around 6,230 units available for a city of nearly 7 million, intensifying competition.
  • Price Impact: With fewer properties on the market, sellers are often able to hold out for higher offers, pushing prices up even further.

What This Means for Sellers: If you’re considering selling, the current market conditions favor strong offers due to limited competition [1].

5. Demand Shift to Affordable Housing

real estate market

Regulatory changes and high mortgage rates have increased the focus on affordable housing units. Lower-priced condos and single-family homes are experiencing high demand, leading to price hikes in these segments.

  • Increased Price for Affordable Units: Buyers are now prioritizing properties that are below the average market rate, pushing prices in these segments higher.
  • Market Segmentation: Luxury homes and high-end properties are seeing less demand, while affordable properties are in short supply and high demand.

For Buyers Seeking Affordable Options: Early entry into lower-priced neighborhoods or new developments can offer growth potential as demand increases in these segments.

“Recent changes to mortgage regulations are fueling demand for lower priced homes while shrinking the pool of qualified buyers for higher-priced homes.”
- Gregory Klump, Chief Economist at CREA

Real Estate Statistics in Toronto

  • Price Changes: As of September 2024, the average price of homes in the Greater Toronto Area (GTA) is approximately $1,107,291, showing a 3.1% increase from August 2024 but a 1.1% decrease year-over-year. The benchmark home price is recorded at $1,068,700, down 4.6% compared to the previous year [2].
  • Sales Activity: A total of 4,996 homes were sold in September 2024, marking a 7.6% increase year-over-year. However, the sales-to-new-listings ratio has dropped to 28%, indicating a shift towards a buyer's market due to significantly increased inventory levels.

housing statistics

The Canadian economy continues to navigate challenges with rising interest rates impacting affordability. The Bank of Canada has implemented rate cuts recently; however, significant cuts are needed to stimulate buyer activity effectively.

Concerns about fraudulent transactions and money laundering remain prevalent as the market adjusts to these economic pressures.

The Future of Real Estate in Toronto

housing price calculator

Experts suggest that the rental market may face difficulties as new listings have not kept pace with demand. The construction of new homes is lagging behind population growth, leading to continued pressure on rental prices and occupancy rates

With immigration expected to drive demand further—projected at 1.5 million new immigrants by 2025—the imbalance between supply and demand is likely to persist unless more housing is constructed

The rental market in Toronto will cause hassle. While 1700 new listings failed, new constructions look pointless due to a lack of demand.

The economy then resorts to turning towards vacancies in the country homes. Those vacancies are very limited, causing another segment of imbalance in the economy.


References:

  1. https://www.huffingtonpost.ca/2018/09/22/tech-boom-toronto-real-estate_a_23538014/
  2. https://wowa.ca/toronto-housing-market

Leave a Reply

Your email address will not be published. Required fields are marked *

*