Will the Toronto housing market ever slow down?

The city is now home to Canada's priciest market – but a slowdown of sorts could be in the cards

Will the Toronto housing market ever slow down?

What can slow the seemingly unstoppable rise in Toronto house prices? With the city having just surged past Vancouver to become Canada’s most expensive market, its stunning month-over-month price growth in recent times seems to indicate that there’s no end in sight to that upward climb.

January alone witnessed a monthly increase of over 4% in Toronto’s benchmark price, which now sits at an eyewatering $1.26 million, according to a new report from RBC Economics.

Still, with that growth likely “unsustainable,” one prominent member of the city’s mortgage industry told Canadian Mortgage Professional that some moderation in the market was to be expected in the coming months.

Drew Donaldson (pictured top), principal at Donaldson Capital, said that while inventory shortages had propelled much of that seismic price growth, the fact that more listings were likely to emerge around the springtime meant that a cooling-off would probably occur from the hectic pace of the past two years.

“As soon as more listings come on the market, which we think will be March, April and May, I think that’ll kind of even out the market a little bit,” he said. “Right now, you’re seeing some crazy price growth – 10%, 20%, even 30%. It’s really unsustainable.

“Usually when that happens and the weather warms up, people start listing to try to take advantage of those prices, and that’s when things start to soften a little bit.”

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The likelihood of impending rate increases should also serve to take some of the sting out of the market, Donaldson said, with rock-bottom current low rates having pushed homebuyers into overdrive to avail of slashed borrowing costs.

“I think as rates slowly start to rise here, you’re going to see people maybe slip back into more of a conservative approach where they’re taking out only what they need [because] they’re starting to worry about rates going up, costs going up, prices going up,” he said.

Much speculation has surrounded the future of the Bank of Canada’s benchmark rate, with some observers suggesting that the central bank might find itself under pressure to introduce more rate hikes than initially planned – or more dramatic increases – because it chose to leave that rate untouched in its January announcement.

Still, Donaldson said those scenarios seemed highly improbable, with the Bank likely to stay its hand and maintain the same steady course it’s taken for much of the pandemic – meaning that a total of around three rate hikes in 2022 is the most logical outcome.

“I think rates are not going to go up, but they’re not going to suddenly have an experiment of raising it seven times in 2022 and seeing what happens,” he said. “I think it’s going to be slow and steady on the rate hikes as we go, and it’ll gradually get higher over time.”

As those Toronto house prices have continued to shoot through the roof, movement to the suburbs and other parts of the Greater Toronto Area (GTA) has been a noted trend in recent years – one that’s only accelerated because of the COVID-19 pandemic and the work-at-home restrictions that have followed.

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Donaldson said that 2022 might see something of a reversal on that front, particularly if a possible post-pandemic landscape emerges this year and restrictions begin to ease. That could see Toronto residents pull the plug or change course on a move away from the city – a development that could have a significant impact on suburban housing markets in the coming years.

“[In} some of these small towns outside of Toronto where the price of a home maybe was $700,000 and now it’s selling for $1.1 million, we might be in for 10-15 years of either no growth or maybe even a small 5-10% correct in the short term,” he said. “I’m not bullish at all on the suburbs surrounding Toronto. I think they’ve gone too hard, too fast.”

Another notable trend of late has seen clients who may own a second property such as a condo in Toronto begin to sell those assets, Donaldson said.

That’s a marked change from a quiet condo market at the beginning of the pandemic that slowly began to gather pace in 2021, resulting in what the Toronto Regional Real Estate Board (TRREB) called a “record fourth quarter” for condo sales at the end of the year.

“The condo market was really subdued in Toronto in 2020, and even 2021 in the first half,” Donaldson said. “In the last two or three months that’s really changed, and we’re seeing a lot of our investor clients that maybe couldn’t sell their condos starting to offload them.”