Toronto Real Estate Market Corrections Signs

One of the unforeseen consequences of the pandemic has been a red-hot housing market with prices rising 22.2% annually as of November 2021. Some GTA markets such as Toronto increased 28.4% year-over-year to $1,242,793 for January 2022. 

Many home buyers rushed into purchases trying to outbid competition last year, with some listings bringing over 30 offers to the table for sellers. 

According to Moody’s Analytics (https://www.moodysanalytics.com/-/media/article/2021/10-canada-housing-market-outlook.pdf) the Toronto housing market is overvalued by almost 40 per cent in Q2 2021, nearly double the national average. Surprisingly, the most overvalued market in the country belongs to Niagara. The Niagara area, including St. Catherines, is an astonishing 90.8% overvalued in Q2 2021. 

The latest market outlook from the Toronto Regional Real Estate Board (TRREB) suggests the average selling price for all home types combined is still expected to climb a hefty 12% this year.

On the other hand there are signs that we might see housing prices falling from their peaks to more justified levels this year. Here are the key indicators that might effect housing prices this year:

1. The stock markets turbulence at beginning of the year might effect the housing market. The S&P/TSX Composite Index ended the year up 3,195 points, or 18%, to 21,222. But this year the socks went on a volatile ride in January and predictions vary for the year ahead.
2. Inflation took a strong hold of our economy last year. The Consumer Price Index (CPI) rose 3.4% on an annual average basis to 4.8% in 2021, the fastest pace since 1991 (+5.6%). Everything from food to cars will cost more this year. The head of the federal Office of the Superintendent of Financial Institutions is predicting inflation will lead to a fall in prices “of 10%, 20%” in some markets.
3. Low mortgage rates that were pushing the prices in the last decade will eventually come to an end. On January 26th Governor of the Bank of Canada Tiff Macklem announced an upcoming interest rate hike. “Interest rates very clearly have to go up to dampen spending and bring demand in line with supply,” Mr. Macklem told The Globe and Mail. The next scheduled rate announcement is March 2nd. The higher borrowing costs combined with inflation will take some buyers to the limits of affordability and curb the extra spending.

These indicators might have to come into play all at once to make a difference to the robust sellers market now. It looks like the high prices will hold this spring due to already pre-approved buyers rushing to purchase at the low mortgage rates. Having said that, there definitely is no better time than now to sell your home or the investment property if you are looking to cash in at the top of the market.