The Ontario housing market, particularly in the Greater Toronto Area (GTA), has reached a turning point. A series of recent data points serve as a warning about the current state of the market, and none of them is encouraging. Despite the demand for housing in the GTA, the market appears to have reached a saturation point. This blog will explore the factors contributing to the stalemate, provide insights into the current trends, and offer predictions for the future.
The Stagnation of Multi-Unit Construction
Multi-unit construction, a critical component of any plan to tackle the housing crisis, has stalled. Developers are hesitant to build homes they aren’t confident will sell for a profit. This reluctance is a significant factor in the stagnation of housing starts, which have dropped by 14% in Ontario. Despite the high demand for housing, financial conditions make it challenging for developers to proceed with new projects. The demand is there, but the financial conditions aren’t.
The Impact of Condo Starts
Condo starts are falling, despite the insane demand for housing in the GTA. The numbers are clear; the demand for housing is not being met due to the financial constraints faced by developers. This situation is leading to a significant imbalance in the market. Over the past year, Ontario has added more than 200,000 people, nearly equivalent to the population of Oakville. Yet, the number of new housing starts does not match this growth, exacerbating the housing crisis.
A Grim Math Problem
The math doesn’t add up—if we are to accommodate the growing population, we need more housing starts. The current rate of housing starts suggests we would need to fit four people into every new bed to meet the demand. This scenario highlights the severity of the housing shortage and the need for immediate action to address it. The current pace of housing starts is woefully inadequate to meet the needs of Ontario’s growing population.
The Summer Malaise
The malaise hanging over the GTA real estate market appears set to linger into August. Sales have been lethargic in recent weeks, and even the Bank of Canada’s recent move to cut its benchmark interest rate to 4.5% from 4.75% hasn’t rejuvenated prospective buyers. The rate cut of 25 basis points is unlikely to provide more than a small psychological boost for buyers. Fixed-term mortgage rates, which are currently around 6.99%, make it difficult for many people to qualify for financing. Bankers have become extremely conservative when it comes to approvals, leaving many potential buyers on the sidelines.
Predicting a Fall Revival
Despite the current stagnation, there are signs pointing to renewed vigour in the fall. Industry experts predict that the market will pick up, especially if the central bank lowers its key rate again at the next scheduled meeting in September. The Bank of Canada Governor, Tiff Macklem, has indicated that additional rate cuts this year are reasonable to expect. Some aspiring home buyers appear to be holding out until they see the lower rates predicted by Bay Street become a reality.
The Stalemate Between Buyers and Sellers
A stalemate is currently playing out between buyers and sellers. Buyers believe that sellers will eventually have to lower their prices, while sellers are prepared to pull their listings or lease their properties if they can’t get their desired price. Inventory throughout Ontario has been inching up each week during July, though the pace of the increases has slowed. More listings are expected to trickle in during August as some homeowners worry that supply will only continue to rise in September.
Advising Potential Sellers
For potential sellers seeking advice, the recommendation is clear—wait for the fall if you don’t have a pressing need to sell. Sales have been bumping along at their lowest level since the early 2000s, and the average price has dipped about 2% so far in 2024. This follows an 8% drop in 2023. Prices could slip another 3% to 5%, but a more severe correction is unlikely. The weak performance of the resale condo segment has dragged down the average price, but in some brackets and neighbourhoods, prices are holding steady.
The Market Dynamics
In a family-friendly Toronto neighbourhood, a house will have no problem selling if the asking price is around the $3-million mark or below. However, in the suburbs, where supply is more abundant, homeowners need to be priced to sell. Depending on the market, it’s either balanced or a buyer’s market. Sellers considering a price reduction should sit down with their listing agent and review what’s happening at both the macro and micro levels.
Consumer Sentiment and Economic Outlook
There is cautious optimism about an improvement in sales, but concern remains about consumer sentiment and the broader economic picture, including the weakening labour market in Ontario. While real estate markets have cooled, the average home price still sits about 33% above pre-pandemic levels. This indicates a significant correction is unlikely, but the market remains in flux.
Preparing for the Future
The housing market in Ontario is experiencing a period of stagnation, but there are signs of potential improvement in the fall. The key for both buyers and sellers is to stay informed and be prepared to act when the market conditions change. For now, consider the current market dynamics, and whether it’s better to wait or proceed with caution.
Conclusion
The Ontario housing market is at a critical juncture, with significant challenges and opportunities on the horizon. The data points to a market that is struggling to meet demand, with financial conditions hampering new developments. However, there is hope for a resurgence in the fall, particularly if the Bank of Canada continues to lower interest rates. For buyers and sellers alike, it’s essential to stay informed and work closely with real estate professionals to navigate this complex landscape.
Stay ahead of the curve with the latest trends, data, and market analysis to make informed decisions. If you’re looking for expert advice and insights on the Ontario housing market, consider reaching out to us 647-424-3576.
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