If you have been following GTA housing market news, and more specifically, Toronto housing market news, you may know 2021 as the year marked by rapid growth and acceleration. In order to forecast the GTA housing market for the upcoming year, it is important to first understand how we got here and where we expect the market to go.
2021 was marked by unprecedented lows in interest rates, not just in the GTA but across Canada. While we did see interest rates begin to rise in the fourth quarter of 2021, they continue to remain at record lows.
At the start of 2021 as interest rates dropped, home prices continued to climb. The housing markets in and around major Canadian cities such as Toronto, London, Mississauga, Barrie, Brampton, Vancouver, and beyond experienced extreme continued growth throughout 2021. As a result, housing became an increasingly unaffordable luxury for many Torontonians, with no help from the federal government to help control the pricing boom.
Although the Bank of Canada has promised to increase interest rates in an effort to slow down the market and lower home prices, this has not yet occurred, leaving many Canadians to wonder what’s next for the GTA housing market.
The Toronto housing market continued to explode in 2021, hitting all-time highs in sale prices in November before declining slightly by the end of December. Low interest rates spiked demand for housing, and home prices rose in response to that demand.
To make matters worse, the Toronto housing market became more competitive than ever in 2021. The number of monthly active listings was cut in half in the span of a year. December 2020 saw approximately 7,900 active listings, but that figure fell to approximately 3,200 active listings by December 2021.
This increasingly limited supply of listings has also impacted the prevalence of bidding wars when closing deals. The average Torontonian paid 9% more than the listed price when closing a home in December 2021. This marks a clear increase from the average 8% mark-up in November 2021 and, more notably, the average 1% mark-up in December 2020.
Fortunately, or unfortunately, depending on what side of the buy and sell fence you sit on, bids are not the only figures that saw growth this past year. In December 2020, the average home price in Toronto sat at around $932,222. By December 2021, just one year later, prices had risen to an average of $1,157,849, growing by almost 25%. The all-time highest average home price was recorded in November 2021, coming in at just around $1,163,323.
Different sectors of the Toronto housing market grew at different rates, based on the types of properties being listed. Townhouses saw the highest increase this year, with prices growing by 30% percent since December 2020. Detached homes followed close behind with an average price hike of 29% this year. Semi-detached home prices rose by approximately 26%, and condominium prices saw an 18% increase since December 2020. The average price of a re-sold house or condominium rose to $1.6 million by the end of 2021.
For many people, the current Toronto real estate market has become too expensive to enter. Furthermore, many Toronto workplaces have continued to adopt hybrid work-from-home models, reducing the need for downtown properties. As a result of these factors, many Torontonians have migrated away from the city and into the surrounding GTA suburbs to look for more affordable housing options.
Downtown Toronto has always been a desirable market for aspiring home buyers. Living in an urban center like Toronto comes with access to a well-connected transportation system, abundant job opportunities, and an endless source of entertainment options.
With the expansion of transportation systems, the extension of work-from-home models, and the rise of Toronto home prices, in recent years many Torontonians have chosen to migrate away from the city and into suburban areas of the GTA. While many regions of the GTA were still subject to inflated home prices, these properties were still more affordable than those within the Toronto real estate market.
Consequently, the growing migration rates into these other areas of the GTA led to a boom in prices in cities such as Mississauga, Brampton, Oakville, Vaughan, and many others, thereby exacerbating the situation.
Home prices throughout the GTA continued to soar throughout 2021. Toronto was no longer the only city with considerably unaffordable prices. In fact, finding an affordable property in any Canadian city at all became a difficult task for most Canadians. Brampton, a mostly suburban city just North-West of Toronto, saw home prices increase by 24% over the course of summer 2021. Most GTA cities experienced similar growth.
Like in Toronto, townhouses have been a major driver of average price increases across the GTA, with detached and semi-detached homes following close behind. While the increase of condominium prices was markedly less significant, 2021 saw a huge surge in demand for condos across the GTA. This growing trend could lead to increased prices in the near future.
This past year, the Department of Finance Canada and the Office of the Superintendent of Financial Institutions raised the requirements for an acceptable mortgage stress test rate. The rate used to sit at around 4.79% but partway through 2021 it rose to 5.25%.
Pair these increased lending requirements with the absolute surge in home prices across the market, and it is not difficult to see why many Canadians have had increased difficulty qualifying for a mortgage with traditional mortgage lending institutions like banks.
If you are a homebuyer looking to work with AAA lenders such as major banks, credit unions, and monoline lenders, you must meet the updated stress test requirements. This is especially difficult given the size of most mortgages today. As properties become more expensive, homebuyers often find themselves needing to borrow more money than ever before.
As first-time home buyers have had more and more difficulty qualifying for the increasingly large mortgage loans required by increasingly large home prices, the mortgage market in 2021 saw an increase in alternative lending. Homebuyers who did not qualify for AAA lenders could work with alternative lenders such as credit unions, trust companies, and even private mortgage lenders. While alternative lenders usually require a slightly higher mortgage rate, they tend to offer a higher mortgage amount to borrowers. This is one of the main reasons why many Canadians preferred the small sacrifice of higher mortgage interest rates over the alternative, downsizing to a smaller property or moving outside of major cities.
Another critical catalyst in the GTA real estate market was the expansion of the Canada Mortgage and Housing Corporation (CMHC)’s expansion of the First-Time Home Buyer Incentive.
Under the First-Time Home Buyer Incentive, first-time homebuyers in the Greater Toronto Area are eligible to borrow 5% to 10% of a property’s purchase price from the Canadian federal government, tax-free, to help with their down payment.
The recent expansion of this program increased the maximum household income from $120,000 to $150,000, recognizing that recent surges in property prices have made real estate purchases inaccessible to a broader umbrella of Canadians. The maximum amount borrowed rose from 4x household income to 4.5x household income.
Because the First-Time Home Buyer Incentive only applies to properties under $1 million, this recent expansion has driven growth in the Greater Toronto Area condominium sector. Many condo units within the GTA fall within this ideal price range, making them an ideal choice for many first-time home buyers.
2021 was certainly both a lucrative and tumultuous year for Canadian real estate markets. While sellers were profiting from unprecedented growth, many homebuyers were left without a feasible home to buy. The question many homeowners, buyers, and investors are asking is what will come next in 2022. Can we expect to see the market grow, shrink, or change?
Based on the momentum we have seen so far, it seems likely that home prices will not be dropping in the near future. Homebuyers continue to migrate away from urban centers like Toronto in droves, thereby boosting housing markets across the GTA, driving prices higher and higher. This is not to say that major city centres like Toronto will suffer price decreases, since immigration is continuing to fuel purchases within major city centres, and as people begin to return to their offices post pandemic, it is expected that many will seek to purchase properties closer to downtown cores.
Furthermore, we can expect to see growth in sales outpacing growth in listings within the Toronto market, as demand continues to surge but supply continues to dwindle. If the global supply chain crisis begins to resolve itself in 2022, we can expect to see accelerated construction of new housing units, hopefully balancing out this phenomenon.
Although home prices rose significantly in 2021, many buyers still sought to enter the market due to all-time low mortgage rates. As interest rates are expected to rise in 2022, can we expect consumer behavior to follow suit?
The Bank of Canada promises to increase interest rates, and eventually they will have to follow through on that promise because of growing inflation and bond yields. However, it is not likely the change will be drastic and sudden, nor is it likely to have sever negative effects on the market.
If the Bank of Canada does stick true to its promise of increasing interest rates, this process will likely begin in the Spring and occur very slowly over a period of many months. The prime rate will increase, impacting variable-rate mortgages and new fixed-rate mortgages. If you have been accumulating debt since the onset of your mortgage, you may have difficulty absorbing the change.
The federal government could potentially mitigate the negative impact of accumulated debt by introducing measures to help support homeowners with debt and new homebuyers. One such measure that the federal government could potentially implement would be to increase amortization periods from a maximum of 30 years to a maximum of 40 years or greater, making the higher interest rates easier for people to absorb.
While we can expect to see a minor decline in the Toronto housing market in 2022, a major crash seems highly unlikely given current market conditions.
With the inevitable increase of interest rates, it will soon become even harder for new home buyers to qualify for a mortgage. Some homeowners may even need to downsize due to no longer being able to afford their homes. Unless the government introduces extended amortization periods, and other measures to assist, home buyers and existing homeowners with high debt will likely have a harder time affording the ownership of housing in the Greater Toronto Area.
We can look back at historical data to better estimate how the market will react to these increased interest rates. When the stress test was first introduced in 2018, home prices started to decline. Fewer aspiring home buyers were able to successfully qualify for homes, leading to lower purchasing rates in the market. Prices went down temporarily and then they went up again.
We foresee the same thing happening again in 2022 after the Bank of Canada (BoC) introduces new interest rates, unless the federal government counters with new policies to help. We will likely see a temporary decrease in the real estate market as mortgage payments become too expensive and fewer people qualify. Eventually, we will likely begin to see new growth, but potentially a slower and more cautious one than before, leading to market stabilization. We may even see the market leverage this slow growth into a complete recovery of prices. Most major cities have extremely resilient real estate markets and will likely bounce back relatively quickly.
If you are an aspiring home buyer looking to purchase a home in 2022, get pre-approved for a mortgage as soon as possible. If you pre-approve your mortgage now and secure a fixed interest rate, you will likely not be affected by the eventual interest rate hikes provided you purchase and close on the new property prior to the expiration of your pre-approval.
If you already own a home and are looking to refinance, do it right now while prices are still growing and rates are still low. If you wait, and later on in the year prices drop, you may not have enough equity in your home to afford refinancing. If you wait and rates increase significantly, you may not be able to qualify for the refinanced amount your desire. Bottom line, if you want to pull equity out of your current home, do it as soon as possible before prices drop and rates rise.
If you are still interested in purchasing property in 2022 but are not ready to get started just yet, there are still a few ways you can prepare yourself. Speak with a mortgage broker and learn what lenders and mortgage products you can qualify for. If AAA lenders are not in the cards for you, start getting comfortable with the potential of working with alternative lenders. You should also try to save up as much as possible for your down payment and clear up or reduce your debts before beginning the home searching process. This will save you a lot of time, trouble, and money in the long run.
One of the greatest challenges you will face as a homeowner will be determining the right time to sell your home. Any time you decide to put your home on your market, you are making a delicate decision. If you wait a while before selling, you run the risk of property prices going down, but you risk missing out on potential growth if you sell your house too early.
One key thing to consider is the reason behind the sale of your home. Why are you selling? If you are looking to downsize, you may want to sell now while prices are high, and keep some of the profits as you down size to a less expensive new property. If you are seeking to upsize, if you wait longer in hopes that your property value will appreciate, keep in mind that the price of your newly upsized home will increase also. In this case, it does not matter when you buy or sell, so it is best to pick the most convenient time for you. For the conservative homeowner and homebuyer, historically the best time to buy or sell seems to generally be “now”. You know with certainty what the situation is today, but you do not know what tomorrow will hold.
Navigating the current real estate market can be challenging and overwhelming. Working with an experienced professional mortgage broker can help ease the process and guide you with exclusive industry insight. Contact Clover Mortgage broker today to schedule a free consultation with one of our trusted mortgage brokers and set yourself up for success!