The latest CMHC housing report for Toronto is in and if you’re expecting to hear their crystal ball prediction on where Toronto real estate prices will be in the next few years, don’t hold your breath.
But if you want to learn more about market fundamentals to better understand the general direction of where Toronto real estate is going, then this report could be pretty useful to help you make smarter decisions.
Let’s dive in!
Understanding Supply and Demand in Toronto Real Estate
It all boils down to basic economics when it comes to market trends.
When supply and demand are balanced, you can expect a more stable market. However, if demand outweighs supply, brace yourself for prices skyrocketing.
This fundamental principle holds true for Toronto real estate and can give you a good idea of where the Toronto real estate market might be headed.
Predicting Toronto's Real Estate Supply
According to CMHC’s forecast for 2024, they’re anticipating a decline in housing starts in Toronto.
Why? Well, it’s pretty straightforward. Builders are finding it tougher to secure financing in this high interest-rate environment, so many projects are getting pushed back.
However, with fixed rates already on the decline and expectations of variable rates following suit later this year, CMHC predicts that Toronto new construction will gradually pick up over the next few years.
So, here’s the deal: while this might add some supply down the road, CMHC isn’t betting on it reaching the same heights as the pandemic rush.
Now, what’s really intriguing is that housing starts could kick off quicker for Toronto low-rise homes compared to those larger Toronto condos and apartments. Why’s that? Well, it’s because smaller developers dealing with low-rise properties can simply take action more quickly.
Forecasting Demand in Toronto Real Estate
Since the beginning of the year, we’ve witnessed a visible surge in Toronto real estate dmand, and according to CMHC, this momentum is expected to continue. Generally, Toronto demand is projected to remain stable and outpace supply for a couple of key reasons.
Firstly, there’s the ongoing influx of immigrants fueling population growth. Secondly, buyers tend to react more quickly to declining interest rates, unlike builders who require time to strategize and execute their plans as rates decrease.
Just note that because interest rates aren’t expected to nosedive, this ultimately means that affordability in Toronto will still be an issue and that means Toronto prices aren’t expected to escalate very quickly.
We talked about Toronto supply trends being different in the condo versus low-rise markets, and it turns out it’s different for demand too.
CMHC expecting less demand for Toronto condos because a big bulk of the buyers are investors. In our current high interest-rate environment, the negative cash flows simply don’t make sense and with more condo completions coming to market this year, this is also going to stabilize the Toronto condo market and subdue price growth – and this will make it less appealing for condo investors to enter the condo market in Toronto.
On the other hand, CMHC is expecting more demand in the Toronto low-rise market, especially with semi detached and row houses that are at more affordable price points.
The demand from young families is still pretty stable and with the government policy focused on densification of the “Missing Middle”, there’s a shift of condo investors entering the low rise market to align with government’s new direction and capitalize on better rents here too.
Projected Trends in Toronto Rental Market
After shooting up very quickly in 2023, we’ve noticed a drop in Toronto rents over the past few months. And guess what? CMHC is on the same page, seeing vacancy rates to tick up a bit too. A few factors are at play:
- the government is scaling back its intake of international students.
- with declining mortgage rates, we’re likely to see more renters eyeing homeownership again.
- recent completions of Toronto condos are adding to the Toronto rental supply, which is keeping rents from soaring and vacancies a tad higher.
At the end of the day, we might see rents come down in the short term but CMHC doesn’t think it’ll be enough to stop Toronto rents from climbing in the long run.
CMHC's Predictions for Toronto Real Estate Prices
Looking forward, we’re seeing signs of more stable prices and rents in Toronto on the horizon, especially with brighter prospects in the low-rise market—great news for Toronto multi-family investors.
Now, if you’re keen on nailing down where Toronto real estate prices are headed, CMHC does offer projections, but let’s be honest, it’s a bit of a mixed bag. The best and worst-case scenarios are all over the map, ranging from a modest 3% increase by 2026 to a jaw-dropping 24% surge in the best-case scenario.
While projections might not be crystal clear, here’s the key takeaway: chances are we hit the medium-term bottom in 2023 for Toronto real estate prices, and moving forward, the trend definitely seems more positive.
For Toronto investors, this is a game-changer, as it means greater confidence in the market with significantly lower downside risks compared to a year or two ago.
Comparing Investment Returns: Toronto Condos vs. Low-Rise Houses
And if you’re thinking about investing in the low-rise market, you’re probably going to outperform the market as a whole.
Here’s how the numbers compare. Investing in a 3-unit Toronto house with renovations could potentially yield at least break-even cash flow, unlike Toronto condos which typically still result in negative cash flow.
Plus, there’s greater growth potential when you invest in a market that aligns with government priorities, and you might even see higher growth if you’re willing to put in some work.
How We Can Help
If you’re curious about what specific low-rise investment opportunities in Toronto look like, don’t hesitate to reach out to our team! We’re here to help you navigate the market and find the best options tailored to your investment goals.
We’re not your typical real estate sales brokerage. Instead, we focus on using numbers to make better real estate investing decisions in Toronto.
That can mean looking for stronger investments with positive cash flow, thinking about risk management, and looking for ways to boost returns like value-add renovations and gentrifying areas.
If you want to discuss your private real estate situation with us, just go to this link below to set up a time to chat!
