GTA Real Estate Market Housing Correction

The latest CMHC report predicts a fall in the housing market

But how much can it be relied upon?

CMHC – Canada’s housing agency recently said the country is now at high risk of a sharp correction in home valuations as the continued appreciation in prices is no longer attached to the economic fundamentals.

On September 28, 2021, The Canada Mortgage and Housing Corp. (CMHC) raised its market risk assessment to high from moderate, in a report showing that both activity and prices remain near record levels reached earlier this year amid rock-bottom mortgage rates and a consumer frenzy for bigger homes.

Last year too CMHC had predicted an 18% fall in housing prices. Later the President apologized for a wrong prediction. Maybe it’s a “cry-wolf” situation this time around, and they could be right. But time will tell.

Evan Siddall, President of the Canadian Mortgage and Housing Corporation (CMHC), had tweeted an apology for CMHC’s prediction that home prices would fall by as much as 18% from pre-pandemic levels by the end of last year as a foregone conclusion. Nobody could have predicted what the market actually ended up doing following the onset of Covid-19, with home prices now rising rapidly. “What we’re seeing today are behavioural factors driving demand in housing, not so much macroeconomic factors“.

Our Two Cents

Do we foresee any major housing correction or the market will be similar for next year?

It can be possible if our government decides to bring in a housing correction. Our market is manipulated by our policy makers in a big way. Our market can crash or go for a soft decline if our government brings in new rules to stop the double-digit price increases by increasing the housing inventory,  change banking policies like bringing in tighter debt-to-income ratios, stricter underwriting policies, or bring in rules to stop investors from buying multiple properties, or bring in some major tax changes that can make real estate profits more taxable etc.

Real estate market can also crash if there are some external problems like high inflation, higher interest rates, any geo-political events etc. People who are leveraged heavily can further contribute towards the plunge as they can start off-loading properties with not many takers.

Anything is possible!

Many people have been booking profits for the last 1.5 years. But no one can time the market. Even experts cannot. Our sellers who sold homes same time last September and booked profits can now see those home selling for at least 20% to 25% more.  The point is that if there is a decline, it might shave-off the bloated price growth of last two years and bring property values back to 2020 Q3 levels.

In the long run real estate prices are bound to go up again with the two most important factors governing real estate especially across the GTA – immigration and lack of housing supply.

GTA Real Estate Summary – September Performance

The latest TRREB’s Market Watch Report indicates that as per historical trend, September marked the transition from the slower summer to the busier fall market in the GTA. Sales increased relative to August and were also at the third-highest mark on record for the month of September. The average selling price was up both month-over-month and year-over-year. However,  the total number of sales was down 18% from 2020’s record September result, mainly due to the lower number of new listings, which were down 34% from the same time last year. The general sentiment for qualified buyers is that they are ready to buy a property tomorrow but are not finding something suitable.

With new listings in September down by one-third compared to last year, purchasing a home for many is easier said than done. The lack of housing supply and choice has reached a critical juncture. Band-aid policies to artificially suppress demand have not been effective. This is not an issue that can be solved by one level of government alone. There needs to be collaboration federally, provincially, and locally on a solution, as per TRREB President.

What are the Current Average Home Prices?

September 2021 Average Home Prices as per TRREB
Detached Semis Condo Towns Condo Apts
Burlington $1,394K  $937K $793K $763K
Oakville  $1,976K  $1,173K  $873K  $771K
Milton  $1,419K  $1,102K  $729K  $611K
Mississauga  $1,594K  $1,032K  $790K  $589K
Brampton  $1,311K  $952K  $695K  $530K
Toronto  $1,778K  $1,304K  $837K  $744K

Supply & Affordability Concerns

The Ontario Real Estate Association (OREA) has launched a petition to #BringAffordabilityHome. As per OREA, Ontario has reached a breaking point when it comes to housing affordability. The average price of a detached home in 2009 in Toronto was under $500,000. In 2021, it is more than $1.75 million. The GTA features only 360 homes per 1,000 people. It is estimated that Ontario will need 79,300 homes each year between 2021 and 2031 in the GTHA alone to keep up with demand. Given undeveloped land is hard to find in these areas, that means adding density.

In 2000, the average pre-tax household income in Ontario was $55,700. In 2018 it was $89,270. That’s a 60.27% increase. During the same period, the average cost of a new home went from $184,003 to $571,973. That’s a 211% leap.

That means housing prices rose more than three times faster than salaries over the same period. And note that this was before the pandemic!

With the average cost of a home in this province jumping roughly 350% since the year 2000, the dream of home ownership is dying for many. At the very least, it’s pricing people out of the homes that they want or out of the towns and cities they want to live in.

There is a well-written article on the real estate market by The Ontario Home Builders’ Association (OHBA). It chronicles major market events and the fear of an imminent real estate market crash predicted over and over again in the last two decades.

The crux of it all is the “supply issue” which needs to be addressed sooner than later. 

Also Read:

Mississauga resale condos vs. builder new condos

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