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Where Ontario’s housing market is headed in 2023

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The price of buying a home in Ontario dropped from its lofty heights during the past year, and the question for 2023 is whether the downward trend will continue.

The Canadian Real Estate Association (CREA) benchmark price of a home in Ontario — a measure that combines sale prices of condominiums, attached and detached houses across all markets in the province — peaked at $1.08 million in March of 2022.

That was a staggering 64 per cent leap in just two years, from the start of the COVID-19 pandemic.

CREA’s benchmark figure for Ontario has since fallen by nearly 20 per cent, but even that sharp decline only takes prices back to the level they were at in September of 2021.

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How much lower will home prices in this province go? With the number of homes bought and sold monthly now lower than it’s been per capita since the mid-1990s, when will the real estate market start to pick up again?

CBC News surveyed real estate experts and analyzed published forecasts to give you this preview of the Ontario housing market for 2023.

 

This home in Toronto’s east end was first listed for $1.849 million, relisted for $100,000 less and ultimately sold in October 2022 for $1.65 million, according to data from the real estate firm Realosophy. (Showwei Chu/CBC)

 

Overall, real estate analysts generally expect home prices to continue to fall, but not a lot further than they already have.

Rishi Sondhi, of TD Economics, forecasts prices in Ontario will decline through early 2023 but bottom out in the second half of the year.

“We are expecting further downside [to prices] but less relative to what we’ve seen so far,” said Sondhi in an interview.

“We think that the bulk of the correction … is behind us.”

That’s partly because there are some signals that the bulk of the Bank of Canada’s interest rate hikes are behind it. The central bank raised its standard-setting benchmark rate seven times in 2022 in an attempt to tackle inflation

Condo projects could be cancelled

Randall Bartlett, senior director of Canadian economics with Desjardins, says it’s an open question when Ontario home prices will stop dropping because various factors on the supply and demand side are pulling in opposite directions.

Those higher interest rates have been the biggest factor dampening demand. However, Bartlett points out employment levels remain strong and immigration numbers are expected to rise, fuelling demand for housing.

The Canada Mortgage and Housing Corp. is predicting headwinds for new condo construction in the Greater Toronto Area. ‘Higher construction costs and interest rates could lead to project cancellations or delays in project launches and dampen homebuying activity,” said the CMHC in a recent housing supply report. (Patrick Morrell/CBC)

On the supply side, many property owners are reluctant to list their properties given how the prices dropped, yet many investors could be forced to sell due to the higher carrying costs of those high interest rates.

There are also signs that the recently rapid pace of new home construction is slowing. The Canada Mortgage and Housing Corp. (CMHC) recently warned that in the Greater Toronto Area, the combination of a sharp drop in condo pre-construction sales, higher building costs and higher interest rates “could lead to project cancellations or delays in project launches.”

“We’re in a very different environment,” said Bartlett. “Demand has cooled off, prices have come down, interest rates are higher.”

He says this could have an impact on the supply of new housing coming on the market in the latter half of 2023.

Mark Ostland, a real estate expert with Meridian, Ontario’s largest credit union, says if the Bank of Canada is done raising rates, that will give more confidence to potential buyers.

Volume of listings expected to remain low

“We are in what I call ‘even-steven times’ at the moment,” said Ostland in an interview.

“On the one hand, we’ve got more affordable home prices than we’ve seen in the last couple of years. But on the other hand, we have the continued rising interest rates that are affecting buyers’ ability to qualify for the mortgage amount they need.”

Real estate analysts generally believe the volume of listings and sales in Ontario will remain low for some time to come.

This graph from the Canadian Real Estate Association shows how its benchmark home price in Ontario has changed over the years, with a steep drop since peaking in March 2022. The benchmark price is calculated from the composite value of sales through the MLS real estate system. (CREA)

“People really don’t want to list their homes when sales and prices are falling, for obvious reasons, and so far, that factor is sort of winning out and keeping supply relatively subdued,” said Sondhi.

Every month since June, home sales numbers in the Greater Toronto Area have been at their absolute lowest in more than a decade — with the exception of the lockdown-affected period in the spring of 2020.

“Sharply higher interest rates and the considerable loss of affordability continue to challenge buyers. And we think they will keep the market quiet for some time to come,” said RBC economist Robert Hogue in his housing market report in December.

On the price side, Hogue noted that Toronto-area prices have fallen 18 per cent from their peak and said “any further depreciation is likely to be more incremental.”

GTA vs. rest of Ontario

ReMax, one of Canada’s largest real estate firms, forecasts prices in the Greater Toronto Area will decline to their 2021 levels, a roughly 11 per cent drop from the average this year.

There’s debate about what will happen to housing markets elsewhere in Ontario that saw astonishingly high run-ups in prices over the past two years.

In the fall of 2021, this house in Toronto sold for $1.9 million, more than $500,000 over the asking price. (CBC)

“Our view is that markets outside of the GTA actually have further to fall than the GTA has,” said Bartlett.

Ontario’s smaller cities have a greater proportion of houses to condos than in the Toronto area and that’s one reason why they remain more vulnerable to further drops in 2023: Prices for condos have been somewhat less volatile than for houses.

ReMax’s 2023 real estate outlook predicts average price declines of up to 15 per cent in London, Kitchener-Waterloo, Barrie, and the Georgian Bay area, while forecasting modest price increases of two to eight per cent in the rest of the province, including Ottawa, Hamilton, Windsor and Sudbury.

Nationally, the CMHC is forecasting the average sale price across Canada to continue to decline until the second quarter of 2023.

The coming year will provide an early test of Premier Doug Ford’s promise to pave the way for 1.5 million new homes to be built in Ontario in a decade.

The Ford government has used the housing supply crunch as its justification for recent moves to limit what municipalities can charge for development fees, weaken the powers of conservation authorities and open up pockets of the Greenbelt to housing.

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'We saved probably close to $100K': Affluent Americans are snatching up prime real estate in other parts of the world — as the US housing market slumps. Here's how to do it too – Yahoo Finance

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Laetitia Laurent knows the value of looking far and wide for a good deal. The Florida-based business owner and her husband had been hunting for a second home for five years before snagging an incredible bargain — in Paris.

She made an offer in January on a 415-square-foot, one-bedroom apartment in the coveted Golden Triangle area between the Champs-Élysées and the Seine, and closed in June.

While the U.S. housing market has been slowing down — thanks to elevated home prices and mortgage rates — there’s been a growing trend of wealthy American buyers investing in overseas homes, buoyed by favorable exchange rates and a strong dollar.

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“I think we saved probably close to $100,000 between the time we made the offer and the time we closed,” says Laurent, who will use the property as a vacation home and a space to host clients for her interior design firm, Laure Nell Interiors. The euro-dollar exchange rate plunged over 12% last year, falling below parity in August.

Whether you’re a retiree looking to spend your golden years somewhere warm and tropical, or someone investing in a second home for some extra rental income, international properties are currently all the rage.

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American buyers are buying properties abroad

The numbers show a clear trend. Coldwell Banker surveyed wealthy American buyers and noted that 67% of respondents own properties outside the U.S. According to Wealth-X figures, the number of high net worth Americans who purchased property abroad in 2022 was also expected to rise by 14% from 2021 and 29% from 2019.

Kelly Cutchin, country manager USA at global payments services provider Moneycorp Americas, says some of these buyers may be looking for an investment property or vacation home, while others could be “jumping the pond” and looking to relocate entirely.

Central America is currently the top preference for affluent Americans, followed by Canada, Mexico, Asia, South America and Europe.

Some countries, such as Portugal, also offer “golden visa” programs, in which wealthy individuals obtain residency or citizenship in exchange for a substantial investment, like in real estate.

The Trend report indicates that while the 55+ age group has the largest share of foreign property ownership, the 25-34 age group has moved up from last to second position.

Cutchin says this is due to generational wealth. “There are a lot more high net worth individuals (HNWI) under the age of 30 than before. These youngsters are looking to diversify their portfolios and starting young is almost never a bad idea.”

An October Bank of America study indicated that rich young Americans are looking to alternative investments, such as real estate and cryptocurrency to boost their wealth.

Why overseas locations may offer more perks

Laurent says that aside from her apartment’s Haussmanian architecture, the declining exchange rate and low mortgage rates in France at the time made it an excellent investment. Even now, French mortgage rates are just above 2%, while American rates remain over 6%.

American home prices, inflation and the political climate may be contributing to buyers looking abroad. If you’re thinking of relocating to a different country, you could sell your home for a high price now and potentially score a lower price elsewhere.

Read more: Rich young Americans have lost confidence in the stock market — and are betting on these assets instead. Get in now for strong long-term tailwinds

The rise of remote work and social media posts with enticing photos and reels of different countries could also encourage buyers to look outside of the U.S.

Cutchin says some buyers may be motivated by others in their social circle buying homes overseas. “We all have a bit of FOMO, right? ‘Everyone in my country club is doing it — so I want to have that same status as Suzy, and so therefore, I too need to buy a property in Paris, and we can vacation together with our families.’”

What US buyers need to know

Cutchin says the most important thing is to do your research. Speak to a real estate agent and an international tax consultant, and look into foreign ownership laws.

In some countries, you may need to afford an all-cash purchase. You could look into financing through your local bank or foreign mortgage products — but Cutchin says these can be limited and could require a larger down payment than what you might see in the U.S. “It’s not uncommon to see a deposit amount of upwards of 30%.”

You may also need to account for extra costs, like translator, tax and legal fees, international bank transfer fees and insurance.

Laurent, who has dual American and French citizenship, went through a French bank to secure her mortgage and needed to purchase life insurance to protect her loan.

Although Laurent benefited from the exchange rate declining last year, Morgan Stanley foreign exchange strategists are predicting it to rise back to $1.15 by the end of 2023. You could consider speaking to a currency expert to lock in your rate before making an investment overseas — for example, Moneycorp allows clients to lock in an exchange rate for up to two years.

“Let’s face it, if the rate moves against you 10 cents between now and June of next year — when you go to actually facilitate that transaction — it might actually place you in a situation where you can no longer afford to make that investment, or you’re not as comfortable as you were previously,” Cutchin says.

What to read next

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

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Irish Commercial Real Estate Deals Plummet as Buyers Bide Time – Bloomberg

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Irish Commercial Real Estate Deals Plummet as Buyers Bide Time  Bloomberg

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Increasingly large down payments could help GTA homeowners weather downturn: Report – CP24

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A new analysis by realtor firm Re/Max says the Toronto real estate market may be better positioned than previously thought to weather the financial downturn expected this year, though there still may be some choppy waters ahead.

The new report compared average price and new mortgage values in different markets across the country between the third quarter of 2012 and the third quarter of 2022.

It found that in Toronto, loan-to-value ratios hovered at around 53 per cent in the third quarter of 2022, compared to 63 per cent 10 years earlier, suggesting people are putting down a higher percentage of the costs of a new home than they were a decade ago.

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Loan to value ratios are used to express how much debt a person holds on an asset compared to its value. The higher the percentage, the greater the debt level on the asset. 

Back in the third quarter of 2012, the average Toronto home price was $483,900, while the average new mortgage amount was $305,776, yielding a loan-to-value ratio of about 63 per cent. 

In the third quarter of last year, the average Toronto home price was 1,079,957 while the average amount for a new mortgage was $567,441, yielding a loan-to-value ratio of about 53 per cent.

So what explains the fact that homebuyers in Toronto are putting down more money even as prices have skyrocketed over the last number of years?

LTV ratios

Rising prices, Re/Max Canada President Christopher Alexander told CP24, are in fact part of the answer.

“Some people have generated a lot of equity over the years,” he said, alluding to people who have made hundreds of thousands of dollars from properties as the housing market took off.

A few other factors have also contributed to people having more money to put toward a home, the report says, including large profits realized in the stock market over a lengthy bull run.

“You’ve had the remote work phenomenon, people are allowed to keep their jobs and move to more affordable markets,” Alexander said.

“And the big, big story is the transition of generational wealth that’s been going on. The ‘bank of mom and dad,’ as we like to call it in the industry, has played a huge role in supporting — whether they’re first time homebuyers or move-up buyers — into purchasing homes at much higher down payment rates with chunks so that they can manage payments a lot easier.”

But while people in the Toronto area may be putting down a higher percentage of a home’s value than they were 10 years ago, there is no getting around the fact that the loans are nevertheless much larger than they were a decade ago — nearly double the size on average.

The report notes that given the steady climb in interest rates last year, “banks are tightening their own lending practices and proceeding with caution when qualifying today’s borrowers.”

The report says some bank appraisals are coming in lower than values paid in recent months, “sending buyers scrambling to make up the difference.”

“With overnight rates poised to climb on at least two more occasions the first half of 2023, market stability will undoubtedly be tested, but the latter half of the year is forecast to improve as homebuyers and sellers continue to acclimatize to new market realities.”

Limited supply of housing and a steady flow of new immigrants to the GTA are expected to buoy the housing market in the next year, the report says.

Alexander said that supply remains “shockingly low” and that some potential sellers may be holding back now because they perceive that they won’t get top dollar for their properties.

“I think the majority of sellers are hoping to get the most for their money just like buyers want to pay the least,” he said. “So you have a lot of them that don’t need to move, just wait. And right now what you’re really seeing is situational transactions. People that have kids, or have gotten married, divorced — the ones that really need to make a move are the ones you’re seeing bringing product to the market right now.”

He said potential job losses triggered by an economic downturn could also send more homes to market if people can no longer afford their payments.

The report noted that mortgage delinquency rates remain low in Canada.

“While challenges certainly exist in today’s high interest rate environment, risk factors for the overall housing market are greatly reduced when homeowners own a larger proportion of their homes,” Alexander said in a statement with the report. “With half of loan-to-value ratios within the 50- and 60-per cent range in Canadian markets, homeowners are better able to withstand downward pressure on housing values and fewer will find themselves underwater, carrying upside down loans.”

Another report from Re/Max several months ago said GTA home prices could drop around 12 per cent in 2023, while one bank recently declared the GTA a buyer’s market.

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