Ontario Real Estate Forecast for the Rest of 2021

It’s been a busy year for real estate in Toronto and the GHTA thus far, and with the second half of 2021 still to come, many hopeful homebuyers are wondering what’s in store. We sat down with Empire’s Director of Market Research, Gary McIlravey, to assess the state of the market and discuss the high rise and low rise real estate forecast for the remainder of the year. Read on for his insights on interest rates, supply, the pandemic and more.

What’s happened in the market so far this year?

“The first half of the year saw the market in tight supply for both low rise and high rise sectors, which led to strong price increases. The second quarter did see some moderation, though it was still a seller’s market. In areas outside the GTA — including the Niagara Region, Hamilton, Haldimand, Brant County and Kitchener-Waterloo — tight supply and demand conditions remained; prices in these areas are half what they are in the GTA, but appreciation is just as strong as homes in the GTA. We’re still seeing people continue to move outside the Greater Toronto Area into these new neighbourhoods in large numbers, and there’s increased pressure on both the new and resale housing markets in many of these areas,” says Gary.

What’s housing supply like right now?

“It’s almost as low as I’ve ever seen it since I began working in the industry in 1985,” says Gary. “Today in the GTA, the amount of available new low rise supply is just 10% of what was available in 2007, but the GTA now has a larger population with stronger international immigration. Couple that with strong real estate demand in the second half of 2020 and the first quarter of 2021, and the fact that Millennials are now a large population group who are now moving into their prime homebuying years, and supply is trending downward again. Low rise homes in particular are in short supply across the GTA, which is part of the reason why many are choosing to look to the Greater Golden Horseshoe in search of housing.

When the Covid-19 pandemic hit in March 2020, there were around 3,700 lots available; after the initial shock, new low rise sales increased in all regions, and in turn, supply sharply depleted in all areas. As of April 2021, there were just 714 low rise lots available for sale compared to almost 4,000 a year ago. It’s also interesting to note that for the first time ever, the total number of available low rise lots in the Golden Horseshoe is lower than the total available in the GTA.

Another way to think about the new low rise housing supply is this: there are currently 2,670 low rise lots to service the entire population of the GTA and Golden Horseshoe, which is close to eight million people. A decade ago, the available supply was closer to 15,000 lots and the population was less.

“A similar, but less drastic situation exists on the high rise side of the market,” says Gary. Between 2012 and 2016, there were typically 20,000 to 24,000 new condo units available in the GTA. By 2017, the total had dropped to around 10,000 units. While supply increased in 2019 and early 2020 — to around the 15,000 units — strong demand in late 2020 and early 2021 has pushed the total downward once again, to around 10,000 units in April 2021. Currently, new condo inventory in the Greater Toronto Area is down to less than half of what it was five years ago, and perhaps more telling, down by 50% from 2019.

This downward trend is also evident in the Greater Golden Horseshoe. In the fall of 2019, there were just over 4,000 new condo apartments for sale across the area — an all-time high. By mid 2020, there were just over 3,000 units available. Since then, strong demand has caused inventory in the area to trend downward to 1,316 units, which marks the lowest supply of new condo apartments in the GGH since 2017. Meanwhile, sales in the area for the first quarter of 2021 are 13% higher than they were in 2020, creating short supply and market pressure.”

How are lower interest rates impacting the new home market?

“Lower interest rates have been fuelling the market for some time, though the low rates of 2020 and today have definitely been a large influence,” says Gary. “Lower rates allow higher price levels to be supported. There is some concern that higher rates could hurt the market and cause a price adjustment, however, the fact that bank mortgages are subject to stress tests mitigates the potential impact of higher rates on affordability. More importantly, given the extreme shortage of new and resale supply, higher prices may still be supported, even if rates increase marginally, because competition between buyers will remain high. It seems unlikely that interest rates will rise notably through 2022, so we’re probably some time away from this causing a negative impact on the new home market.”

Has the condo market regained confidence? Is now a good time to buy?

“The condo market has seen some challenges post-Covid, with the average resale price in the GTA declining from $666,000 in February 2020 (an all-time high) to $601,000 in December 2020, marking a 10% decline. However, strong sales through the first quarter of 2021 has seen the market bounce back. All of the 2020 price declines have been recovered and then some, with the average resale price for a condo in April 2021 at a new all-time high of $692,000. As of now, the rapid price increases of early 2021 have moderated and the market remains strong, meaning it’s a more favourable market for buyers.”

In what ways has the pandemic changed how buyers are shopping for a new home?

“Technology has greatly changed how people buy, and the pandemic definitely boosted its relevance in the real estate market, with everything from registration to virtual sales appointments done online. It’s also contributed to the strong sales numbers we’ve seen, as homebuyers can complete the whole sales process quicker and easier.”

How has the pandemic affected where homebuyers are looking to move to?

“The pandemic has also accelerated the trend of people moving out from the 416, 905 and 519 area codes in search of more affordable housing. This trend isn’t new and has been going on for a few years — since 2016 and particularly among Millennials — but the pandemic has caused these groups of homeowners who would have likely made the move a few years down the road to do it sooner. Similarly, those living in smaller homes and condos in the GTA made the jump into the suburbs in the second half of 2020 and early 2021, as many of them began working from home and anticipate that their current work from home arrangements may become permanent.”

What’s the overall real estate outlook for the remainder of the year?

“Since more people are now vaccinated for Covid and cases are declining, an increased opening of the economy is likely. This means more of those whose jobs have been affected by the pandemic in areas such as personal services, hospitality and travel will be going back. In addition, international immigration is resuming and is now back to pre-pandemic levels. The job market and wider economy should continue to improve through the rest of 2021 and into 2022. These factors will contribute to strong demand for housing in 2021 and 2022, however reduced supply levels in all sectors — resale and new, low rise and high rise — may mitigate actual sales growth. There’s simply not enough housing supply in the Greater Toronto Area and Greater Golden Horseshoe to meet demand. This imbalance will continue to put pressure on prices though the remainder of this year and into next.”

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