CMP Article – Could the GTA housing market roar back in 2024?

Hopes are rising that 2024 could be the year when a resurgence begins to gather pace in Canada’s real estate market – but in the Greater Toronto Area (GTA), prospects of an imminent uptick appear decidedly slim.

Fewer than 66,000 home sales were recorded in the region throughout 2023, according to the city’s real estate board, a dive of 12.1% compared with the previous year as interest rate hikes and still-high home prices continued to put the squeeze on homebuying aspirations.

While prices dipped amid that market cooldown, the average selling price remained well above $1 million, keeping the city poised alongside the Greater Vancouver Area (GVA) as Canada’s most expensive urban region for real estate.

The Bank of Canada is expected to start lowering interest rates at some point in 2024, a development that would ease affordability challenges for buyers and potentially breathe new life into the market.

Still, with no timeline yet evident for rate cuts, market activity could be set to remain muted for the first few months of the year, according to a GTA-based mortgage broker.

Matthew O’Neil (pictured), president of Connolly Capital Mortgage Solutions, told Canadian Mortgage Professional that he wasn’t counting on an instant surge of activity in 2024’s opening quarter.

“I think the next four to six months are still going to be pretty challenging,” he said. “There isn’t a ton of spillover from people buying at the end of 2023, which would be closing this year. And I don’t imagine there’s a ton of new buyers this winter.”

When are buyers likely to return to the GTA housing market?

The good news, from O’Neil’s perspective, is that buyer sentiment is likely to pick up at the first indication by the central bank that it’s ready to begin trimming rates.

“As soon as there’s some glimmer of hope from the Bank of Canada for rates – it looks like there is some in April, May, June, July of this year – I think things will start to pick back up,” he said. “But I don’t see that happening for probably at least another four months.”

That said, rates will have to fall substantially – at least into the threes and fours – for buyers to step back into the market, O’Neil added, particularly with monthly payments remaining eyewateringly high for homeowners and purchasers in the GTA.

“The payments are just too expensive. That’s really the main issue,” he said. “We start with people wanting to buy. It’s just that they can’t pay $5,000, $6,000, $7,000 a month for the mortgage.”

Prospects for first-time homebuyers are dim in the GTA market at present, with slightly lower prices doing little to improve the affordability challenges at play.

“The issue, especially for my market, really hasn’t changed,” O’Neil said. “That’s kind of a common issue that we’ve been dealing with since 2019, 2020. The strategies for [first-time buyers]  are the same moving forward as they’ve been for co-signers. You need to buy with a friend, you need to move outside the city.

“None of that is getting any better anytime soon. Prices went down 5% to 10%, but [in] the Torontos, the Mississaugas, the Oakvilles, the prices haven’t really softened as much as rates went up.”

Where are buyers finding value in the GTA?

Hamilton’s market is offering some respite for buyers in the GTA, O’Neil said, with freehold homes, townhomes and detached housing still available there for the $500,000-$700,000 range.

Affordability in South Burlington has crept out of reach for many buyers, he added, although North Burlington is also an option alongside Hamilton for the first-time cohort.

In its final housing affordability outlook for 2023, Royal Bank of Canada (RBC) said “modest” relief could be on the way for Canadian homeowners and buyers – but not enough to substantially move the needle where prospects of buying a home are concerned.

“There’s  very long way to go before affordability is meaningfully restored,” the bank’s assistant chief economist Robert Hogue wrote. “Buyers in many of Canada’s large markets will contend with extremely difficult conditions for some time.”

Ontario and British Columbia, Hogue said, are expected to see home resale activity remain “especially quiet” until rates begin to fall – “and then, the recovery that will follow is likely to be gradual at first.”

Price growth last summer contributed to an especially difficult situation for buyers in Toronto, Hogue added, with ownership costs rising to “crushing” levels. Still, increased downward pressure on prices is expected to continue in the coming months.