The past year has been a year of uncertainty, and the Toronto real estate market has faced uncertainty like any other industry. There have been mixed reports, and “experts” have reported conflicting predictions as to where the market will move to over the next few years.
And while we cannot predict for certain what will happen in the future, we can look at current trends to predict what is likely.
Market beginning to cool
Now that we are at the midpoint of the year, we are starting to see some cooling in the Toronto real estate market. April and May saw the slowing down of real estate sales. As the Toronto area saw the largest coronavirus numbers in the province, and as the lockdown dragged on, there was a corresponding reduction in the housing supply.
Last month, the number of real estate transactions that took place in Canada’s largest city dropped by a whopping 8.9% based on data provided by the Toronto Regional Real Estate Board. Nevertheless, the average price of a home in the Toronto region still rose from April to May by 1.1% to $1,061,987.
Still a sellers’ market
Despite there being fewer buyers since the March 2021 high who are actively looking to purchase Toronto real estate, there are also fewer listings from that time. This means that there is still a lot of competition between buyers which serves to drive prices upward.
From May of 2020 to May 2021, real estate prices in the Toronto area have soared 19% (based on a composite price index that makes adjustments for the mix of homes being purchased). This has put the price of a Toronto home and near-record levels.
The impact of COVID
Toronto has been under some of the strictest lockdown measures in the country in order to combat that pandemic and the surge of infections. But this fact alone does not appear to be responsible for the cooling of the real estate market.
When one compares Toronto to Vancouver which has had less infections and less restrictive lockdown measures, there is still a similar slow down in real estate sales.
Where COVID is likely having a much larger impact is in regards to the restriction of international travel. Both Toronto and Vancouver see much of their population growth coming from immigration, and as that has been severely slowed by the pandemic, it has affected the real estate market as well. Neither city is experiencing its normal population growth at this time.
A stricter mortgage stress test
Another factor that may impede the housing market in Toronto is the fact that the federal government’s mortgage stress test became stricter as of June 1, 2021. This means that borrowers will now be more limited on the amount of mortgage that they will be able to qualify for. Homebuyers in Toronto must now be able to prove that they can afford an interest rate of 5.25%. This is up from an earlier requirement of 4.79%.
This change to the rules will mean that the size of the mortgage which buyers can take is reduced by approximately 4%.
While it remains to be seen what kind of impact this will have on the housing market, it is expected that this will add to the cooling for at least the short term.
Contact us today
If you are buying or selling a home in the Toronto area, we can help. As professional Toronto real estate agents, we have experience in reading the housing market and we understand the strategies needed to put you in the best possible position for your real estate transaction. Call us today to set up an appointment.