Since the start of the COVID-19 pandemic, many Canadians have put things like travel and real estate on the back burner. Slowly, over the past year, many people are interested in taking that long-awaited vacation. Similarly, with all the time spent at home, it has made many of us re-evaluate our housing needs and wants. But is it the right time to start thinking about moving or purchasing a home for the first time? Let’s take a look at the current Ontario housing market standings to help you decide if renting, owning or staying put is the best option for you.
Market report summary for March 2023
The price of buying a home in Ontario has dropped from some of its highest levels during the past year. For 2023, the question is how much lower will home prices in this province go, and if a downward trend will continue. The Canadian Real Estate Association (CREA) benchmark price of a home in Ontario — a measure that combines sale prices of condominiums, attached and detached houses across all markets in the province — peaked at $1.08 million in March of 2022. That was a staggering 64% leap in just two years, from the start of the COVID-19 pandemic.
Currently, with the number of homes bought and sold monthly, now lower than it’s been per capita since the mid-1990s, when will the real estate market start to pick up again? Overall, real estate analysts generally expect home prices to continue to fall, but not a lot further than they already have. Rishi Sondhi of TD Economics forecasts prices in Ontario will decline through early 2023, but bottom out in the second half of the year. “We think that the bulk of the correction…is behind us.” That’s partly because there are some signals that the bulk of the Bank of Canada’s interest rate hikes are behind it. The central bank raised its standard-setting benchmark rate seven times in 2022 in an attempt to tackle inflation.
Reasons for prices remaining high
At the end of 2022, the Ontario housing market began to slow down. For 2023, it is unlikely that there will be a sharp decline in home prices, even though they have decreased slightly. While the housing market is cooling down and balancing, it’s not expected to increase affordability, particularly in Ontario. According to canadianrealestatemagazine.ca, some of the reasons for this are:
- High interest and mortgage rates.
- Demand in the market has decreased.
- Homeowners choosing to save instead of buy. Many owners have opted to offset their payments with rental income by leasing out investment single detached homes, or even the basement of their primary residence.
- The high rates also mean that rent prices are expected to rise, especially in major cities like Toronto.
- Disconnect of real estate from salaries and incomes. Even if the inventory of listings sees a decline in prices, it does not necessarily mean that the average person can afford one.
- Housing prices saw more than a 50% rise in prices during the height of the pandemic, and is a very small fraction of prices that roughly tripled over the past two decades.
- The Canada Mortgage and Housing Corporation (CMHC) recently warned that in the Greater Toronto Area, the combination of a sharp drop in condo pre-construction sales, higher building costs and higher interest rates can lead to project cancellations or delays in project launches.
Desjardins and TD economics both agree that home prices are expected to drop 25% by the end of 2023, particularly in provinces other than Ontario. For a smaller city, a 15% decrease in prices is expected, especially in the London, Kitchener, Waterloo, Barrie, and Georgian Bay areas.
Ontario housing market statistics
Some important Ontario housing statistics to be aware of from nesto.ca:
- Ontario’s average home sale price decreased 19.3% year-over-year to $867,900 for April 2023. While in comparison, nationally, the average home sale price was down 15.8% from a year ago to $715,400.
- The average price of an average single-family home in Ontario decreased by 20.6% year-over-year to $945,000 for April 2023. While in comparison, nationally, the average detached home sale price was down 17.5% from a year ago to $781,300.
- Ontario’s average town/rowhouse price decreased by 17.5% year-over-year to $686,100 for April 2023. While in comparison, nationally, the average town/rowhouse sale price was down 13.1% from a year ago to $660,700.
- The average condo price in Ontario decreased by 11.1% year-over-year to $625,700 for April 2023. While in comparison, nationally, the average condo sale price was down 7.9% from a year ago to $528,500.
- The average rent for a one-bedroom apartment in Ontario increased by 16.9% year-over-year to $2,180 for April 2023. While in comparison, nationally, the average rent was up 10.1% from a year ago to $1,729.
As of April 2023, data from the Ontario Real Estate Association (OREA) and Canadian Real Estate Association (CREA) indicates that the average price of resale residential homes sold across the province in April 2023 was $865,279, a substantial decrease of 20.4% compared to a year ago.
By the fourth quarter of 2023, the average prices of homes in Canada are set to fall about 1 percent to just over $750,000.
Are people buying real estate?
With the passing of the omnibus Bill C-32 legislation, including the foreign buyers’ ban and anti-flipping tax, the Ontario homebuyers’ demographic may be shifting away from foreign investment. According to Statistics Canada, foreign investors only make up less than 5% of homeowners in Ontario’s largest cities’ total homeownership. Here is a look into current demographics of homebuyers:
- Multi-property investors: According to a report by Teranet, investors and multi-property owners accounted for over 25% of Ontario’s homebuyers in 2021.
- Immigration & out-of-province migration: While the pandemic saw thousands of homebuyers leaving urban areas due to affordability limitations, new immigrants are making Ontario homes a continued surge.
Starting in January 2023, non-Canadians are banned from purchasing homes in Canada (with some exceptions) for two years as a way to improve affordability for Canadian citizens.
- Upsizing buyers: Upsizing by buyers has driven Ontario’s demand for single-detached homes. Homes priced from $697,400 in February 2020 sit currently at $945,000 – a 35% increase.
- First-time homebuyers: Getting a mortgage in Ontario as a first-time buyer can be challenging for many. Ontario has some of the highest property tax rates for a large city. The Bank of Canada keeps rates elevated – adding a barrier to qualifying for a home without a combined household income over $150,000.
Without a large correction, prospective homeowners will continue renting. A strong majority, 7 of 10 analysts, say home ownership would decrease over the next two to three years.
Reasons people aren’t selling
Sales activity in many of Ontario’s major housing markets remains lower year-over-year. But, it has seen significant improvements compared to the start of the year, in large part due to seasonality. Home sales in Toronto are down by 37% year-over-year and up 44% from last month. Homeowners don’t want to list their homes when sales and prices are falling, for obvious reasons. This is the main driver behind keeping supply relatively restrained. Every month since June, home sales numbers in the Greater Toronto Area have been at their absolute lowest in more than a decade — with the exception of the lockdown-affected period in the spring of 2020.
Toronto-area prices have fallen 18% from their peak. However, experts believe that any further depreciation is likely to be more modest and not very impactful. Nationally, the CMHC is forecasting the average sale price across Canada to continue to decline until the second quarter of 2023. “We’re in a very different environment,” said Bartlett. “Demand has cooled off, prices have come down, interest rates are higher.” He says this can have an impact on the supply of new housing coming on the market in the latter half of 2023. Mark Ostland, a real estate expert with Meridian, Ontario’s largest credit union, says if the Bank of Canada is done raising rates, that will give more confidence to potential buyers.
Ontario’s smaller cities have a greater proportion of houses to condos than in the Toronto area. That’s one reason why they remain more vulnerable to further drops in 2023. Prices for condos have been somewhat less volatile than for houses.
Rentals in Ontario
It would be remiss not to address the rental market when discussing the housing market in Ontario. Rents reaccelerated as the Canadian rental market entered the spring. Asking rents for all available property listings increased 1.0% monthly and 10.8% annually to reach an average of $2,004 in March.
Double digit rent growth
- Two-bedroom rents increased the fastest on an annual basis, up 10.7% to an average of $2,127.
- One-bedroom asking rents also recorded double-digit annual rent growth, rising 10.1% to an average of $1,749.
- Three-bedroom units were up 6.8% year-over-year to an average of $2,402
- Studio rents increased 4.9% from a year ago to an average of $1,395.
Single room rentals coming into focus
As rental costs have soared in Canada over the past year, private room and shared accommodation rentals have gained popularity. The average asking rent for single room rentals in Canada was $834 in March. In Ontario, monthly rent is averaging at $934 provincially, with a single room in Toronto averaging at $1,309.
Final thoughts on the Ontario housing market
Ontario’s housing market is set to remain strong. The average home price in Ontario has dropped significantly since last year. However, this comes after months of record consecutive price rises during the pandemic, and one of the most intense periods of price appreciation the province has ever seen. Many analysts report not seeing any real substantial change commencing until the end of 2023. For more information about the Ontario Housing Market, be sure to read our corresponding articles listed below to help keep you abreast of the housing market.