Owning a home in the GTA is said to be an absurd pipe dream. Well, it does seem to be so given the dizzy levels the home prices in the Greater Toronto Area have reached. Even with the recent downturn this year in 2024 many of my prospective clients find it difficult to afford a house or condo apartment. 

Rapid increase in mortgage interest rate in the last 2 years certainly put a damper on any hopes people had owning their first home or even upgrading.

But it is not entirely impossible to own a home. Let us try to look at this situation from both sides.

Income Requirements

Recent analyses highlight a significant financial gap between average earnings and the income needed to afford a home. For instance, purchasing a single-family detached home in the Greater Toronto Area now requires a household income of approximately $269,000. In Toronto, a potential homebuyer needs around $209,000 in annual income to buy a median-priced home at $1,050,300. Despite easing of mortgage rates, both fixed and variable, the income needed remains dauntingly high due to lingering high property values and stringent mortgage approval conditions, including the higher benchmark rates of the mortgage stress test.

So, what does this mean for the average Canadian? Essentially, the financial bar for homeownership has been set very high. Many are finding it incredibly difficult to save enough for a down payment, let alone manage the monthly mortgage payments.

While it’s true that housing prices have decreased in some areas, the overall picture remains bleak. Across Canada, home prices are still significantly higher than pre-pandemic levels. The market may be cooling slightly, but not enough to make homes accessible to the average Canadian. High mortgage rates has created formidable barriers.

Once a feasible milestone for the middle class, buying a home is now a goal seemingly reserved for the wealthier segments of society. The stringent mortgage stress test, combined with elevated property prices, has created an environment where only the financially well-off can consider purchasing in major urban centers. This shift is not just affecting cities but is also pushing potential buyers towards smaller towns, impacting housing markets across the country.

Changes in Policies

Changes in policies and political influences also play a significant role. For instance, the Bank of Canada's recent rate cuts offers some relief, but buyers may still be waiting for additional cuts before feeling confident to enter the market. This slight reduction in interest rates is a step in the right direction, but it may not be sufficient to significantly ease the financial burden on potential homebuyers just yet.

In British Columbia, the anticipation of new measures to curb housing prices has influenced market dynamics, with many choosing to sell their properties before potential price drops. While these policies aim to make housing more affordable, their effectiveness remains to be seen.

The federal government's efforts to limit population growth include a new cap on international students and a targeted reduction in temporary residents to 5% of the population over the next three years. While this policy may not significantly impact population growth in 2024, it's expected to slow growth in 2025 and 2026. Coupled with an increase in condo completions over the next two years, this could alleviate some pressure on the rental market. However, it may also create additional challenges for condo investment demand. 

Currently, these factors are unlikely to drive developers to lower prices enough to attract investors back into the market. Elevated interest rates and rising municipal development charges mean new condo prices will likely remain high.

If you’re looking to buy a home though, the current environment demands careful consideration. While it may seem counterintuitive, in some cases, buying now could offer advantages, like building equity sooner or leveraging favorable market conditions in specific regions. However, this decision is highly personal and depends on factors like financial stability, credit status, and long-term plans.

Low Inventory and Bidding Wars

Though sales are down, there are still fewer affordable homes on the market compared to historical averages, making competition fierce for desirable properties. This low inventory situation means that even with reduced buyer activity, the market remains highly competitive.

With limited inventory, bidding wars can still erupt, especially for move-in ready homes, pushing prices beyond asking. These bidding wars not only drive up the cost of purchasing a home but also create a highly stressful environment for buyers, who may feel pressured to make quick decisions or stretch their budgets further than planned.

Market Analysis and Predictions

Experts predict continued stagnation in sales in 2024, unless mortgage rates drop significantly or sellers start accepting lower bids. High prices and interest rates are keeping many buyers out of the market. Some analysts forecast a rise in home prices due to sustained demand and limited supply, particularly in urban areas where inventory remains low. Conversely, other experts anticipate a slight decline or stabilization of prices as the market adjusts to current economic conditions.

As of June 2024, new condo prices have decreased by only 5% from their peak, whereas resale condo prices have dropped by 12% and could decline further due to the recent increase in listings. Developer incentives and a 30% rise in rent from COVID lows provide some support for investors, but it's insufficient. In essence, investing in new condos is not feasible at the current market average price of nearly $1,400 per square foot.

The housing market in Canada is complex and influenced by various factors such as economic policies, interest rates, and global economic trends. Staying informed and seeking professional advice can be crucial steps in navigating this challenging market. Whether you’re looking to buy now or waiting for potentially more favorable conditions, understanding the forces at play can help you make informed decisions.

As always, I’m here to help you make these decisions by ensuring that you have the right information. My goal is to guide you through the process, providing insights tailored to your specific situation, so you can make the best choice for you and your family. 

If you have any questions, call me at 647-834-9928 or email to [email protected]