Toronto Real Estate in Recession: What Will Be Top Performers?


Now that interest rates might be stabilizing and the Toronto real estate market is favouring buyers, you might be thinking about getting back into real estate investment.

But with worries about a possible recession, it can be confusing to figure out what to choose.

If a recession does happen, which types of properties in Toronto are likely to be more resistant and perform better?

Toronto Condos in a Recession: Risks and Opportunities

Let’s talk about Toronto condos first. They’re fancier, but here’s the thing: if our economy is not doing well, people tend to choose more affordable places to live. 

Think about the people renting Toronto condos – during good economic times, office jobs are great. But when there’s a recession, they become riskier tenants compared to essential workers like those in hospitals, construction, or students. So, in a recession, condos are more likely to have higher vacancies and ultimately more rent fluctuations.

Now, let’s look at what happens next. When tough times hit, landlords who were already struggling with tight condo cash flows might have to sell their properties. If we check the data from the last recession in 2008, condos saw a clear downward price drop during the recession because of this. 

But then, because rates came down pretty quickly last time, investors flocked back in with cheap credit, and Toronto condos ended up reaching new highs sooner than other types of homes.

Toronto Precons vs. Built Condos: Which is Safer?

When we talk about Toronto condos, we sometimes get asked about Toronto precons. 

If you can afford to buy a condo that’s already built, we’d say go with that because precons are a lot more risky. First, there’s the risk that the property won’t be completed by the developer, and there have been more recent issues with this. 

Second, there’s also a big price risk. The property’s price has to be at least what you paid at the exact time of completion to ensure your financing is okay. Since you won’t be making any rental income until the property is ready, all your investment risk is focused on the price, making it even riskier.

Toronto Semi-Detached Homes: A Balanced Approach in Recession

Let’s talk about Toronto semis next. During the recession last time, semi prices did swing but it was more of a sideways movement compared to condos. 

The demand is more balanced from both end users who need a place to live, and investors who generally had better holding power with higher total rents, more affordable rentals, and more units to spread out the risk. 

But with fewer investors in the mix, they ended up taking a bit longer to reach news highs after the recession compared to Toronto condos.

Toronto Detached Homes: Stability and Recovery

Now, let’s look at Toronto detached homes in the last recession. 

Data shows that they’re least affected by the recession probably because these homeowners generally have better financial situations and less debt, making their homes more stable during tough economic times. 

But for the same reason, Toronto detached homes took the longest to reach new high prices after the financial crisis.

Toronto Commercial vs. Residential: Why Residential is Safer

One more thing to avoid might be Toronto commercial rentals. 

These kinds of spaces are more influenced by economic downturns, so we’d say it’s a better idea to go for residential real estate because everyone still needs a home to live in.

Past and Present: Factors Influencing Toronto's Real Estate

Now, what happened 15 years ago can give us some clues, but remember, the situation isn’t exactly the same this time around.

  • In the last recession, interest rates went up more slowly, going up 225 basis points over three years and that’s why Toronto prices were close to its highs at the start of the recession, and then dropped by 15 to 20% during the recession. This time around, rates have gone up twice as face in less than half the time. 
  • This is why we’ve already seen 15 to 20% price drops and the recession hasn’t even started yet.
  • Back in the last recession, interest rates fell a lot, more than 400 basis points in a year and a half. This made many investors jump back into Toronto condos. But this time, we don’t expect rates to drop as much as quickly, and that’s going to affect how quickly things bounce back.
  • Government priorities in Toronto have also changed. In 2009, policy makers were focused on building more housing, especially condos. Now, the Toronto government is more interested in “missing middle” projects.
  • Lastly, Toronto gentrification patterns have changed over time. For example, Leslieville saw a lot of gentrification 15 years ago and now it’s pretty nice – so you can’t exact the same high growth this time around since gentrification has shifted elsewhere in the city.

Best Toronto Real Estate Investment Strategies

So how do we combine past and present to get a better picture of what might happen next? 

  1. We think it’s wise to invest where the government is putting its money. So, Toronto houses might be a better choice compared to Toronto condos. 
  2. And you might end up seeing outperformance in the more affordable Toronto neighbourhoods that are starting to get better.
  3. For steady returns, consider Toronto houses that are divided into multiple units. Having more units, plus being more affordable types of rentals, usually means safer rents. 
  4. And from what we’ve seen during the last recession, Toronto semis often recover faster than Toronto detached homes.
  5. And in our current Toronto buyers market with high interest rates, you can get the best bargains if you buy a Toronto house that needs a lot of work. It’s not for everyone, but if you’re up for it, taking on these projects can lead to even better returns. 

So hopefully that helps you narrow your scope down … if you need more help with investing in Toronto real estate, our team is here for you!

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