Toronto Real Estate 2023 Predictions: What Might Fall The Most & What Markets Might See A Recovery

Toronto Real Estate 2023 Predictions: What Might Fall The Most & What Markets Might See A Recovery


2022 was a wild year with some crazy real estate headlines, and rightly so. To sum it up, the first third of the year was insanely hot, and even with the first 25 basis point rate hike, the market still wasn’t backing down. 

But once most people realized how serious rate hikes might get closer to April, things quickly flipped upside down for the rest of the year. Nobody knows what 2023 might bring, but we suspect more predictability relative to 2022. 

So what do we expect for 2023?


Real Estate Trends: 2015 to 2022

Let’s take a look at what’s happened so far. Here I stacked the annual price of 416 detached homes with their monthly prices since 2015. The macro trend is that real estate prices have been going up on an annual basis, and 2022 actually followed this trend. 

But this actually undermines the craziness that went on in 2022. The reality is that prices actually went up 21% from the 2021 average at the peak in 2022 and then ended 9% lower than the 2021 average. And so the peak-to-trough difference was an insane 37% within one year!

The good news is that conditions are expected to be more stable than that for 2023, but it doesn’t mean much because 2022 was just that crazy. But also because of that, 2022 isn’t a very good year for us to compare and contrast with. 

So let’s go a bit further back and try to figure out what 2023 might bring by comparing it to 2021.

Prices Need To Get Back To Affordable Levels

The big plus was that rents rose, which benefits rental properties. Freeholds went up around 20%, and condos went up a bigger 24%. 

On the flip side, inflation drove interest rates and mortgage payments up too, which is obviously the big negative. Average mortgage rates were around 2% in 2021, but now fixed rates are closer to 5%. So that would be a 45% increase in payments if the purchase price is the same. Home operating expenses are also up. And according to inflation numbers, shelter is up around 7% from 2021. 

So yes, big expense increases mean prices still need to come down. But the obvious difference is that rental properties will be in a better position compared to end-user homes. 

For house investments, prices would need to be lower by 10% compared to 2021 average prices to see similar cash flows because of the increase in rents. 

For condos, even though rents came up higher, they have a bigger expense ratio compared to houses, and that ends up weighing more on the budget. And because of this, prices might need to come down more, by 14%, from 2021 average prices to see similar cash flows again. 

The biggest downside impact definitely goes to the end users’ homes. Math here tells us that prices need to come down 30% from average 2021 prices to see similar monthly affordability compared to before.


Toronto Investment House Price Forecast 2023

GTA End User Home Price Forecast 2023

Markets With Better Access To Credit Will Recover Faster

But even if the price is right, the other part that’s going to cause more divergence in real estate markets comes from access to credit. 

Because credit is tightening, there will be a drop in investors because fewer people can qualify and home prices are simply not there for refinancing to buy even when they can. From the end-user side, luxury homes will probably be dragged down more because of the same reason: it’s just harder to get a big enough mortgage to buy properties that need a bigger mortgage.


As you can see, these factors will mean more diverging market trends ahead. The markets that will recover the fastest will be demand-dependent. Demand for investment properties will come more from those who have stronger income ratios. Most of the time, their preference will be for safer investments with a better balance of cash flows and appreciation, like freeholds over condos. 

And for end users, demand will probably funnel more so into starter home types because firs time home buyers are the more likely ones to be able to buy: they have the least outstanding debt to being with so they can actually borrow money, purchase prices and mortgages are lower. 

Plus, the barrier to entry is also lower because it’s actually possible to go with a lower downpayment if they choose CMHC mortgages, and more Toronto houses are now going to dip under $1 million, which is the requirement for CMHC mortgages.


How We Can Help

So while it’s true that 2023 might open up more opportunities, it’s not a simple decision at all because real estate will not all be moving in the same direction and will also not be recovering at the same pace. But that’s precisely where we also come in. 

If you need help planning out your 2023 Torotno real estate investing roadmap, including where and when you should be buying or selling, we’re ready to help.

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We’d be happy to learn more about your situation and help you find the best investment opportunities for you.