GTA real estate caught between high interest rates, low supply

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Contrasting forces will be at work in 2023 in Greater Toronto Area real estate.

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Toronto Regional Real Estate Board (TRREB) chief market analyst Jason Mercer said the impact of tight supply and growing population will increase pressure on house prices in the medium to long term.

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“We’re still going to be hungover from the higher borrowing costs that we’ve seen online this year … This will continue to have a hit to affordability in the housing market that prospective homebuyers will have to contend with,” Mercer said. “But on the other side of the coin, we will continue to see accelerated population growth due to immigration. And all of these new homes are going to need a place to live, and that doesn’t matter whether you’re talking about the ownership market or the rental market.”

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The Bank of Canada’s (BOC) rate hike to 4.5% in early December, the latest of seven straight hikes, has made it more expensive for homebuyers.

According to a TRREB report, home sales fell significantly in November compared to the same period in 2021, impacted by higher interest rates.

Listings also fell, keeping average home sales prices at just over $1 million, lower than in 2021.

The consequences of these increases will likely be felt into 2023 and beyond, he said.

However, the downward pressure on GTA home prices seen in the early months of 2022 has leveled off, he said.

The rental market has grown, bringing double-digit rent increases, he said.

Governments at all levels have identified a housing shortage as the main reason for the high prices.

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Ontario has also increased its speculator tax, while the Canadian government will ban foreigners from buying residential real estate in Canada for two years from January 1.

Mercer said these measures to limit foreign investors might have an initial impact, but won’t have a significant impact over the longer term.

“We haven’t seen on either the ownership side of the market or the rental side of the market that supply has kept pace with population growth over the past decade,” Mercer said. “And we expect even stronger population growth.”

The goal should be to ensure there is both more housing supply and more housing choice overall, he said.

For now, GTA tends to offer mostly condos or expensive single-family homes with little in between to meet residents’ changing housing needs, he said.

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