Ontario real estate market aerial view

In the aftermath of the coronavirus pandemic, homeowners in the Ontario real estate market witnessed incredible gains. After a modest slowdown in the first two months of the global health crisis, many aspects of the Ontario housing sector – particularly detached and semi-detached homes – soared and recorded all-time highs, from sales activity to price growth.

But has an adjustment phase commenced? In fact, the provincial housing sector is already in one.

The Ontario housing industry has been witnessing a slowdown, despite an environment of tight inventory, sky-high prices, and changes to the mortgage stress test. Conditions peaked at the end of 2021 and have been facing a downward trend ever since, with average prices falling from roughly $1.1 million to below $900,000. How much more it will cool down remains to be seen. Still, with the typically busy spring buying season here and interest rates potentially peaking, the market consensus is that homeowners keen to hammer a “for sale” sign on the lawns of their residential properties might want to consider locking in some of their profits soon.

The latest trend in the province’s real estate sector has been sellers turning down sweetened offers, anticipating even better bids for their two-bedroom, two-bathroom bungalow just outside downtown Toronto. Some real estate agents, who have witnessed too many of these instances, now suggest taking the money and running as the housing market shifts into a balanced territory.

Ontario Real Estate Market Shifts into Adjustment Phase

In August 2021, the National Post published an article titled “The great real estate cool-down has come.” It included examples of homeowners who regretted their decision to turn down offers in hopes of more lucrative bids.

For instance, a Hamilton seller received an offer that was $100,000 over the asking price. Instead of accepting the money, the individual rejected the six-figure addition. Rob Golfi of RE/MAX Escarpment Golfi Realty Inc. suggested that this is evidence of “how inflated expectations in still-hot-but-cooling Canadian markets such as the GTA are causing home sellers to miss out on otherwise profitable exchanges.

“Many [sellers] are realizing weeks later that they botched a great offer and regret becoming overly confident and unsatisfied with the offers they declined,” he noted at the time. It’s difficult for sellers to understand that we are now in an adjustment phase.”

Does this mean the Ontario real estate market, as well as the broader Canadian housing sector, has experienced a substantial correction or collapse? It depends on how you define correction or collapse. Nationally, the average home is selling for more than $686,000. In the country’s most populous province, the average price is still north of $850,000.

But while the pandemic-era double-digit spike might not be the new normal, sky-high prices might be the new standard across the province. Now that conditions have stabilized, 2023 and 2024 might be the years of slowly getting back to normal, particularly now that the Bank of Canada’s (BoC) quantitative tightening cycle has reached its zenith.

Moving forward, there are many factors at play that could prevent another flurry of sales activity and double-digit valuation spikes that were seen in the first two years of the COVID-19 public health crisis.

Why is the Ontario Real Estate Market Adjusting Anyway?

Be it in Toronto or Northern Ontario, can the typical household in the province afford to purchase residential property? In Toronto – the financial capital of Canada, for example – it would take many years to save for a down payment, with some estimates predicting as high as 25 years. This is a critical barrier to entry for homebuyers.

Housing supply continues to be low, leaving a limited number of options for those who want to dip their toes in the real estate market. With inventories as subdued as they are, it becomes incredibly competitive for the vast buyer pool. However, whether it is frustration over the intense bidding wars or the sticker shock for a starter home, many people have been sitting on the sidelines and waiting for relief to come. Indeed, the sales activity and price growth that was ubiquitous in the immediate aftermath of the COVID-19 public health crisis have diminished. However, these metrics are beginning to pick up steam on a month-to-month basis.

In the summer of 2020, the federal government increased the threshold for the mortgage stress test. The new stress test rate was raised to 5.25 per cent, decreasing an average family’s affordability to $618,000. It is an important rule because the stress test means you have to qualify for your mortgage at the minimum qualifying rate, forcing buyers to lower their budgets or save up a higher down payment.

In March 2022, the Bank of Canada (BoC) finally paused interest rate hikes, hinting at some upcoming relief from the cost of borrowing and impacting everything from mortgages to car loans. The past year’s rising-rate climate weighed on the finances of households looking to achieve the dream of home ownership.

It is unclear if enough supply will be coming online to meet demand and reduce housing prices across the country. According to the Canada Mortgage and Housing Corporation (CMHC), housing starts edged up about 1.2 per cent year-over-year to 7,122 units in February. On an annualized basis, new housing construction activity is up more than 11 per cent to 12,008 units.

“This moderating market is an opportunity for homebuyers to take the time to consider their needs, assess opportunities patiently and ultimately make a wise purchasing decision and investment in the long run,” said Christopher Alexander, the President of RE/MAX Canada, in a 2023 Housing Market Outlook report.

Canadian Real Estate is at a Critical Juncture

Most Canadians concur that there is a housing affordability crisis nationwide. Despite the myriad of proposals that were laid out during the federal election campaign and public policymakers continuing to present in front of the Canadian people, industry leaders agree that the best solution is more supply, which could be achieved through streamlining the application process, cutting red tape, and incentivizing more development. Until this is accomplished, it will continue to be challenging for many young buyers to follow in the footsteps of their generational predecessors and achieve the Canadian Dream.

Posted by Paul Ambler on


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