Three experts weigh in on where Toronto’s housing market is heading in 2018

By: Jessica Mach on December 28, 2017

Toronto’s housing market saw big drama in 2017. Affordability dropped to record lows, as did demand for the types of homes that buyers have long favored. Lots of government legislation, much of it controversial, was introduced in an effort to make sure the city remains liveable for everyone.

So, what can we expect for the market in 2018? We talked to three experts — real estate broker Conrad Rygier, Simon Fraser University professor Josh Gordon, and CIBC World Market Inc.’s deputy chief economist Benjamin Tal — to find out.

Expect a delayed spring market this year

Over the past year, a flurry of regulations at the federal, provincial, and municipal levels — including a foreign buyers tax and Airbnb restrictions — have been introduced to help rein in Toronto’s high housing prices and low vacancy rates.

As the new year creeps closer, everyone will be paying attention to how OSFI’s new mortgage rules will impact homebuying. The rules, which go into effect Jan. 1, include a “stress test” that will make it harder for potential homebuyers to qualify for a mortgage.

Much ink has been spilled on how the impending arrival of the OSFI rules have affected traditional market patterns. As fall transitions into winter, home sales usually slow, but this year, many people are rushing to buy before Jan. 1., after which they may no longer qualify for a mortgage under the new rules. November has actually seen an uptick in sales from October.

Rygier predicts that the OSFI rules will impact traditional market patterns after they come into effect, too. Buyers tend to get spooked by new regulations, he says, so expect sales to be slower than they usually are in January and February.

But consumer confidence will likely pick up again once the novelty of the rules wear off.

“People still need to buy. There’s still a demand — Toronto is Canada’s largest city,” says Rygier, who predicts that sales activity will begin climbing again in April or May. It might also extend into early summer, “when [the market] traditionally slows down — we might see it extend a bit longer because it starts a bit later.”

Prices will continue to climb for condos and single-family homes — but at different rates

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In the Greater Toronto Area, sales of single-family homes (detached, linked, and semi-detached houses and townhouses) declined drastically in November 2017 compared to the same month in 2016 — by a whopping 82%.

That does not, however, mean that demand for housing has slowed. Torontonians have just adjusted their preferences in keeping with what they can (occasionally, or almost) afford: condos.

The surge in demand for condos means that their prices are creeping up, too. As a matter of fact, because the GTA’s homebuyer population disproportionately favors condos over single-family homes, condo prices are rising faster. In November 2017, benchmark prices for newly-built condos had gone up by 42.6% compared to November 2016. Meanwhile, new single-family homes only saw a (admittedly still hefty) 25.1% jump in prices in November 2017 compared to November 2016.

Rygier thinks that the OSFI rules will intensify condo demands in 2018, since they will slash the buying power of prospective homeowners looking to purchase single-family homes.  

“The stress test is supposed to weed out people who can’t afford [what they want to buy],” he says. “So that’s why I see condo growth — especially lower-end condo growth — being quite busy this coming spring, because people who now won’t qualify for as much money — maybe they were hoping to buy a house, now they can’t afford a house. But they can afford a smaller condo.”

That being said, prices for housing in general will probably not increase as quickly as it has in recent years. This will at least be the case in the first part of 2018, when consumer confidence — and demand — is likely to stay low.

“Consumer confidence is unlikely to rebound in the near term, both because of the stress test and the way that the real estate stats will be reported,” says Gordon of Simon Fraser University. “The media often report the year-over-year figures for price movements, and those figures are likely to be negative in the next few months, sometimes significantly so. So that's unlikely to boost consumer confidence, which has already taken a hit since last April.”

The rental market will stay tight, rents may creep up

Again, it all comes back to the OSFI rules. The stress test will make it harder to qualify for a mortgage, so many prospective buyers who can’t pass the test will have to continue renting in the already low-vacancy city.

“Many people will be priced out of the [buying] market due to increased qualification rates,” says Tal of CIBC. “So the amount for rentals probably will rise” — to reflect higher demand for rentals.

But several events coming later in 2018 might help even things out.

On July 1, Toronto’s new regulations on short-term rental networks like Airbnb will come into effect. The rules are expected to force housing not used as primary residences  that had previously been used only for short-term rentals to join the long-term rental market.

Plus, 2018 will see a lot of building completions in 2018: research firm Urbanation expects that 20,000 condo units will be completed and join the GTA’s housing market next year.

But, Tal says, this might not be enough for a city with alarmingly low vacancy rates. “There will be some supply coming from the condo market,” he says. “But still, this is a very tight market.”

Newcomers to the GTA — including students and new immigrants — will continue to have issues securing housing

Most prospective renters will — have, and do — face stiff competition for affordable housing in the GTA’s low-vacancy, high-priced rental market.

“Three years ago, four years ago, it'd be rare that I'd be representing a tenant who'd be competing against another offer let alone two or three other offers, or more,” says Rygier, who has worked as a real estate broker in the GTA since 2008. “Now, it seems to be the trend.”

For people with new or poor credit histories, like students or newly-arrived immigrants, the challenge is even bigger.

“I know from past attempts that if a landlord has in front of them three or four offers, and one of them is a business professional with good credit, my client — let’s say a student client with a good guarantor — has no chance,” Rygier continues. “So people of all stripes — new people to the country, students — these are all people who sort of end up being almost impossible to represent in today’s market.”

Toronto's housing market tends to defy the odds

Forecasts can’t take the unexpected into account.

“I don't have a crystal ball, so I can't say definitively what the future will hold,” Rygier says.

Gordon agrees. “Forecasts at the moment are particularly tricky to provide. Speculative expectations and activity have played a big role in the Toronto market, and those are inherently difficult to predict. There are also so many variables out there that will affect prices which are very hard to know with much certainty — the fate of NAFTA, the state of the Chinese economy, the North Korea situation, and so on.

He continues. “I will say this much: if I were a potential first-time buyer, I would be very cautious in the current market.”