The Toronto Real Estate Market Is On Its Way Down (But Not For Long) & What This Means For Investors

The Toronto Real Estate Market Is On Its Way Down (But Not For Long) & What This Means For Investors


The markets have definitely shifted since the beginning of the year. Buyers are a lot more cautious, and in many cases, many buyers are on the sidelines waiting to see where prices will head after a series of rate hikes and government budget announcements. 

We’re still in an environment of many unknowns, like how many more rate hikes are coming and how that will affect real estate, how new measures targeting speculators and foreign buyers might reduce demand, and how new plans to boost supply might also tie into the big picture. 

On the listing side, listing strategies that have been working over the past couple of years are starting to work less well. Specifically, listing low and putting offer dates together doesn’t necessarily attract the buyer party that sellers were used to seeing, and many properties are staying on the market for longer than expected. 

In this video, I’m going to be talking about our take on where we think the Toronto real estate market is headed very soon.

What's Happening Right Now

I think where we’re headed is actually very similar to what we experienced back in 2017. In April 2017, Ontario started to impose a new non-resident sales tax of 15% on all non-Canadian real estate buyers in an attempt to cool a very heated real estate market, which worked.

That was also combined with a series of aggressive rate hikes. The Bank of Canada started raising rates in July of 2017 and ended in October 2018. In a little more than a year, we saw a total rate hike of 125 basis points.

The impact of this was pretty different across various markets in Toronto. The type of property that was the most affected was detached properties in Toronto, dropping 25% in price from the peak in April 2017 to the lows in August 2017. Semis also dropped close to that amount by 21%. The market that was least affected were condos, which dropped by 8% by July 2017.

What Happened In 2017

Let’s go take a look at the plans from the Ford government. Right around the same time as the federal budget announcement, the Ontario government came up with a new housing bill with the theme, “more homes for everyone.” 

We can clearly see that Ontario feels our housing crisis is also primarily caused by a lack of supply, so if you look at their solutions, most of them also have to deal with adding housing supply.

The Ontario government echoes a lot of the stuff that the federal government talks about, including increasing density and multi-generational living, but more specifically, the key is to create more affordable housing units by increasing the variety of housing options, like multi-unit homes. 

The problem right now is that you can’t convert many single-family homes into triplexes in Ontario because of zoning rules. This is something that is highlighted in a report prepared by the Housing Affordability Task Force that is specifically looking into getting rid of the red tape to make this possible.

Comparison of Returns

Now, we know prices definitely dropped very quickly within a short period of time, with freeholds, especially the end-user detached markets, being most affected. But the pace of recovery was also different between these markets.

The detached market took the longest time to recover, so if you bought at the peak in 2017, you only recovered your losses by 2021.

Condos didn’t take as much effort to bounce back because it didn’t drop a lot to begin with. Basically, prices got back to the peak prices of April 2017 by early 2018.

Investment freeholds in Toronto are always an interesting market, and I usually use semis as a broad gauge. Semis had a comparably substantial drop, just like the detached properties, but they also saw the highest rate of recovery.

Take a look at this. If you bought at the bottom of July 2017, when the prices were the most discounted for all of the markets, then by March 2018, you will have had the best price growth in semis, and then condos.

Condos are more of a luxury market, so their rent yields are lower than freeholds, and they typically don’t cash flow. What you end up with is that, in terms of total returns, semi-detached properties would have performed the best by March of 2018.

Next, let’s look to see what returns looked like a year after that, in March 2019. Again, semis continue to outperform condos in terms of price growth, while detached properties continue to lag the most. As a result, semis remained the best performers in March 2019.

Now, let’s look one more year later, in March 2020, right before COVID knocked the real estate markets out of whack with astronomical rates of growth. We have the price growth of semis still outperforming condos slightly, and the detached market is still lagging. The rent yields on semis continue to be the best. From a total return standpoint, so semis continue to be the best medium-term performer out of these three markets in Toronto.

What This Means For Real Estate Investors

To address your first most likely question, yes, we do expect prices to drop in the coming weeks. As a real estate owner, maybe that’s not great news, but if you’re in the market to buy, this is very good news!

Over the coming weeks, many buyers and sellers are still fearful, and that’s when you will be able to get the best discounts out there. If the markets act in a similar way compared to 2017, then we expect this discounted window of opportunity to be pretty short for the investment real estate markets. After that, prices will start coming up again as buying confidence comes back, and so if you want the best properties and the biggest dips, you have to act pretty quickly in the coming weeks. 

How We Can Help

We’ve been analysing various pockets in core Toronto and we’re seeing some areas that might recover faster and more than the broader Toronto semi market. So if you are looking to invest in Toronto real estate and want our sales team to help you out, let’s chat and sort out a roadmap for success.

During our initial meeting, we’ll take time to get to know your requirements and preferences so that we can match you with the best investment property that fits them. After we help you buy it, our team also provides renovation guidance, leasing and property management if you need it. Just connect with us if you want to learn more about our services!

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