Toronto's real estate market is always a hot topic of discussion. And with good reason - it's one of the most important aspects of our economy! In this article, we'll take a look at the Toronto housing market in Q1 of 2022. We'll analyze whether or not the market is headed for a crash, what the government is doing about record-high prices, and what buyers and sellers can do to prepare themselves.
Summary:
Government increased rates by 0.25% in March, with more to come in 2022; to help ease inflation
Toronto has a 1% vacancy tax - likely not going to help deter speculators
Buyers during this month should wait and observe market trends carefully, and get pre-approved from a lender to lock in a rate before it increases more.
Sellers, what are you waiting for? Get talking to a realtor and capture that gained equity. If you have your reasons to sell then now is likely better than later. However, at Mo Realty Team we recommend multiple property ownership
There are a few factors that will play a role in determining the future of Toronto's real estate market. The first is interest rates. Low-interest rates were introduced as a form of economic stimulus to combat the economic issues covid brought. However, the record low rates have helped push prices on all goods and services including houses up. This my friends is inflation.
With low rates, it becomes cheaper to borrow money to purchase cars, household goods, and even mortgages. If interest rates were to rise, that could put pressure on prices. As of this article, Fixed rates have been climbing and are roughly 3.5% to 3.75%; while fixed rates are hovering around 1.6%. The government has increased the Prime Rate by 0.25% in March and is set to do another increase later in April. Rates will go up, no doubt about it, this is required to bring down the 7%+ inflation rate we are currently experiencing to a reasonable target of 1 to 2%. With that said, property values grew closer to 25% year-over-year; so this is beyond inflation which is why the government will need to step in.
An important factor affecting the housing market is government intervention. The new government rules that were implemented in early April 2022 regarding banning foreign buyers for two years, as well as the vacancy/speculation tax introduced for 2022, are in effect in Ontario at a rate of 1% of the assessed value. These may help cool the market but ultimately the limited supply is still not addressed with these regulations. Remember that we already had the stress test (currently at 5.25%), which was very effective at lowering the demand since 2017 and 2018 (with moderate price increases) but it did little to lower the market once low interest rates came in.
Even though the stress test is a conservative practice it has had the intended consequences of pushing many first-time homebuyers out of the market and has made it the perfect playground for second-time buyers to reinvest and outbid others. If the government increases this stress test (low chance) it will further push buyers out and will likely cool the market. The government has a lot of pressure to bring prices to an affordable number.
The last factor to consider is population growth. Toronto's population is growing rapidly, and that has helped to drive up the demand for housing. If population growth were to slow, that could put downward pressure on prices. Unfortunately with the immigration outlook; this is looking to be unlikely. Most immigrants, like myself 22 years ago, find themselves moving to a big city for its job opportunities. Many of which will be looking to rent or buy homes adding more to the demand side of things.
So, what does the future hold for Toronto's real estate market? It's hard to say for sure. However, if interest rates do not increase enough, the Toronto economy continues to be strong, and population growth remains robust, prices are likely to continue to hold high and potentially even rise. Of course, anything can happen - so buyers and sellers should always be prepared.
Do you have any questions about Toronto's real estate market? We'd be happy to answer them! Send us an email or give us a call today.
