What Might Happen To The Toronto Real Estate Market If We Go Into A Recession In 2023?

What Might Happen To The Toronto Real Estate Market If We Go Into A Recession In 2023?


With rates being so high, perhaps it might have surprised you that we didn’t see a spike in listings from more mortgage defaults. 

Now if high interest rates didn’t break the housing market and we’re probably in for a recession soon, what might happen to the real estate market if that happens? 

In this video, let’s find out!

Would A Recession Cause Real Estate Prices To Fall?

Here’s one perspective we’ve heard: We haven’t seen many mortgages go into default, even with today’s much higher rates, because banks have been pretty flexible with mortgage holders, offering them a variety of options and dragging out amortizations. 

That means most homeowners aren’t forced to sell, and so we haven’t seen the full negative impacts on the real estate market yet. 

But once a recession hits, the people from this camp feel that higher unemployment will ultimately lead to more mortgage defaults and forced home sales, and that’s finally going to pull prices down.

Recessions & Real Estate Over History

In theory, that could make sense, but it turns out real estate prices and recessions aren’t as correlated as we think, at least over the last five recessions. 

According to historical data from CREA, prices actually rose 1.8% on average from start to end during recessions. The reality is that most buyers buy based on affordability. 

For long-term investors, it almost always comes down to cash flow and making sure they have strong enough holding power, which helps them reap long-term real estate benefits. 

For end user buyers, besides having enough of a down payment, they buy based on how much they can qualify for on the mortgage side and how much their monthly payments are. 

And all of these changes depend on where what interest rates look like, so interest rates end up being the biggest driver of real estate prices.

Interest Rates & Real Estate

With eight interest rate hikes going up a steep 425 basis points in less than a year, we’ve actually already seen a big downward price adjustment in real estate. 

And now that bond yields are coming down, fixed mortgage rates are going lower, so this is what’s giving room for real estate prices to climb again.

Right now, recession expectations continue to grow. Instead of betting on another rate hike by September, the current bond market is now expecting a rate cut by July, and there’s a good reason for that. 

  • The BoC decided to hold rates stable for the first time in a year this March. 
  • The US Fed is also hinting that they’re getting close to the end of their rate hike cycle, with the banking chaos as a key factor in the decision. 
  • Canada’s PPI actually deflated this month, and Canada’s CPI saw the largest deceleration since April 2020. 
  • The BoC minutes from March came out, and it’s revealed that all five governing council members think that the target rate should continue to hold because the economy is slowing and inflation is coming down. 

So all of these factors point to rates heading down instead of up, and if that actually pans out, it should continue to give strength to real estate.

Immigration & Real Estate

On top of this, in another video, we talked about how big immigration targets might put more pressure on real estate values, and that was based on a growth estimate of 500,000 people per year. 

2022’s population growth data recently came out at 1 million people, double what was expected. So based on simple supply and demand, this should also drive home values higher.

Where Will Real Estate Prices Go?

Now, we have to be clear that we don’t have a crystal ball—we can’t say for sure that we’ve hit rock bottom and prices will only go up from here. We also focus on long-term investing and discourage flips. 

So if you’re considering long-term real estate investing, the signs do point to more positives than negatives for the real estate world, with interest rate expectations coming down and strong immigration targets. 

And Toronto’s more mature freehold market can be a more secure option; prices normally don’t spike as much, but they also don’t drop as much in a downturn.

How We Can Help

So if you’re thinking about learning more about these kinds of opportunities, we’d love to have a personalised discussion with you to learn more about your situation. Just reach out to us!

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