Toronto’s housing market has been a difficult for people in the past few years, but prices have become more stable in 2019, resulting in a more balanced and rational marketplace. Whether you’re a buyer, investor, or seller, now is a good time to engage in this market. This article will go into deeper detail about the current affordability in Toronto, compare Toronto’s affordability to other major cities, and take a future outlook at what’s to come.
Current Affordability in Toronto
Owning a house in Toronto is tough, but it’s gotten better in 2019. We’ve seen some price stabilization since 2017, with buyers now acting more rationally and taking their time to investigate and bid on property. Conversely, sellers now need to put in the effort to make their property show-ready and ask for a price that actually leaves room for negotiation.
RBC’s June 2019 Housing Trends and Affordability Report provides some useful statistics on affordability. The report focuses on the RBC Housing Affordability Measure, which looks at the ownership cost of a house compared to the median household income; the higher this number, the less affordable housing is. This number rose steadily from 45% in 2009 to 65% in 2017. The good news is, the trend stabilized around 65-67% from 2017 to 2019.
In terms of adjusting to this more balanced market, sellers are probably having a harder time than buyers. Jim Burtnick, Senior Vice President of Sales at Sotheby’s International Realty states:
After almost a decade of Toronto being a seller’s market, with listings selling in days and multiple unconditional offers well over asking prices, things have changed. Properties are now taking longer to sell, with buyers no longer feeling pressured to bid in multiple offer situations. In fact, buyers are now adding conditions to their offers.
At first glance, this situation doesn’t seem good for sellers compared to before. But the reality is, most sellers will have to re-enter the market as a buyer after selling their property. And in this case, a more rational and balanced market is definitely better. Furthermore, a soaring marketplace may pop at any time, leading to plummeting prices. In that case, buyers, sellers, and investors would back out of the market, which is bad for everyone.
Apart from Toronto, RBC’s report also looks at other major Canadian cities. Vancouver’s Housing Affordability Measure is the highest at 82%, with other major cities like Montreal, Ottawa, Calgary, and Edmonton ranging from 36% to 47%.
Although Toronto’s housing situation isn’t the best in the country, it also certainly isn’t the worst, and it’s improved over the past few years.
Housing Affordability in Other Major Cities
To get a better idea of Toronto’s housing market, we can look to other major housing markets across the globe. The 15th Annual Demographia International Housing Affordability Survey compares the housing affordability in 2018 across major cities, including New York, Los Angeles, Chicago, London, Sydney, Singapore, and Hong Kong.
The Demographia report measures housing affordability using the Median Multiple, which is the median house price divided by the median household income; the lower the number, the more affordable that market is. A Median Multiple of 3.0 or less is considered to be affordable, 3.1 to 4.0 is moderately unaffordable, 4.1 to 5.0 is seriously unaffordable, and 5.1 or higher is severely unaffordable.
So how does Toronto compare? In short, Toronto ranks 10th (tied with London) out of 91 major cities in being unaffordable, with a Median Multiple of 8.3. Vancouver is at 12.6, second only to Hong Kong at 20.9.
Of course, Hong Kong and arguably even Vancouver are experiencing quite extreme situations compared to the rest of the world. But even apart from those two cities, there are still many cities in a worse situation than Toronto: San Francisco, Auckland, Los Angeles, and Melbourne all have a median multiple ranging from 8.8 to 9.7. That being said, some other comparable cities are doing better than Toronto: Boston, New York, and Seattle have a median multiple ranging from 5.3 to 5.6.
While Toronto does rank high on the global list of unaffordability, it is still much better than many other cities.
What’s Next for Toronto
For those who are wondering if prices will drop in the near future, it’s not likely. According to RBC, prices are “back on a slight upward trajectory… unlikely to come down much, or at all, in the near term.”
Toronto is still one of the most attractive cities in the world for immigrants, and Canada counts immigration to sustain its population. Not only is Toronto more affordable than many other cities around the world, it is also very immigrant friendly. All this means demand will continue to increase. Burtnick states:
With Toronto still being (by far) the ‘gateway’ city for most newcomers to Canada (from other provinces in Canada and especially from abroad), Toronto will still need more and more supply of housing to meet demand. Simply put, new supply cannot keep up with demand. So if you think Toronto/GTA is expensive now, just wait 10 years!
But now that prices have stabilized, it is a good time for all parties to get in the market.
Richard Silver, Senior Vice President of Sales at Sotheby’s Canada, sees a bright future for Toronto’s real estate market, especially in major areas with good access to transportation. He advises buyers to view real estate as a home for their family rather than a search for a “great deal”. He states:
There are those who look at real estate as a stock portfolio and are more concerned about value than a place to live for their family. They are always in search of a great deal when they should be in search of a home. The best ‘buy’ in real estate should always focus on location: Proximity to the subway system, great schools, shopping, and parks are more important in the long term.
So if you need a home, don’t delay, but make sure you spend some time comparing listings to find the one that best suits you. If you want to sell a home, make sure your property is showing-ready, properly priced, and realize that you will need patience to secure the best deal possible.