Toronto Real Estate Recovery Will Takes Years, Not Months: BMO 

One of Canada’s largest banks is telling investors Toronto real estate sales are back, but prices—not so much. Despite a huge jump in existing home sales across Greater Toronto in January, prices continued to slide lower. BMO explained to investors that the increased activity will prevent further declines, and even boost home prices in time. However, they also warned investors that home prices in the region will take years to return to the all-time high, not just a few months. 

Greater Toronto Real Estate Has Seen A Sudden Surge In Activity

Greater Toronto real estate shook off the cobwebs last month. TRREB reported seasonally adjusted sales showed a monthly increase of 10% in January. Unadjusted sales were a whopping 39% higher than the same month last year. Strength has been building after bond yields peaked in October, and slid lower delivering cheaper financing. 

“While we should keep in mind that winter real estate numbers can be swung by weather and few listings, there’s little doubt that buyers have been awoken by lower fixed mortgage rates,” explains Robert Kavcic, senior economist at BMO.  

Kavcic also sees falling prices observed despite the sales uptick as a temporary issue. Adding, “…we suspect that, if all goes as planned with rates and the economy, prices will find a more sustained bottom through the spring.” 

Toronto Real Estate Prices Will Take Years To Recover

BMO is quick to highlight that price support doesn’t mean the pre-rate hike frenzy is returning. “… it’s still a long way back to the 2022 high for this market—about 19% to be exact. Given that affordability is still stretched and the investment math is tough at current rates, it looks like a long slog back to those highs,” explains Kavcic. 

Toronto Real Estate Recovery Expected To Take Years

The indexed benchmark price of a typical home across Greater Toronto. 

Source: BMO; CREA. 

BMO’s point on financing is a salient one. Well qualified buyers have been sitting on the sidelines, and their pent up demand should be expected at the first sign things are clear. However, most experts are forecasting only two rate cuts this year. That only brings financing costs back to this time last year. With prices at a similar level too, market activity was significantly slower than people anticipate this time around.  

Historically, it’s taken a significant amount of time to return to the all-time high post-correction. Psychological hurdles remain, as speculators with fresh wounds are reminded they aren’t operating risk-free. At the same time, affordability challenges still remain for end-users, crowded out by investors.  

“Recall that even the scorching TO market went nowhere for more than three years after the froth of 2017; after 1990 it took almost 12 years to get back (though a lot went wrong during the 90s),” says Kavcic.  
“Either way, the trip back to the price highs of 2022 will be measured in years, not months or quarters.”

4 Comments

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  • george 5 months ago

    Psychological hurdles remain, as speculators with fresh wounds are reminded they aren’t operating risk-free.

    I will put this on my email signature…hahaha!

  • Dan 5 months ago

    why is that graph showing average prices at 250k in 2019 in Toronto, where and what timeline of the universe are you???

    • Better Dwelling 4 months ago

      The BMO chart specifies CREA index, which is base 100. It’s not in thousands of Canadian dollars but used to illustrate relative movements. Benchmarked dollars are a less preferred data point CREA provides, trying to make prices roughly relatable.

  • Dar Robbins 5 months ago

    Economics is an art not a science. That’s why it’s in the University’s art dept.
    If inflation keeps rising, Real Estate may climb with it. No sure thing but there’s plenty of historical precedence for it. However, arguments could be supported for or against.

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