As the average price of homes spiked to over 25% in the Ontario market between 2020 and 2022, many investors are watching the Ontario housing market closely. Being a Toronto native with a lifelong passion for innovative business and investment ideas, Russell Robson and his team have had their finger on the pulse of the area's real estate trends well before these recent developments. We'd like to extend our gratitude for making us one of the premier real estate firms in the Greater Toronto Area by sharing some of our insights into the rapidly changing conditions affecting those looking to buy or sell in Ontario, and four of the main trends that are shaping the Ontario housing market in the early 2020s.

As might be expected, the effects of the mad rush that defined 2020's Ontario market—rapid depression and subsequent frenzy of monthly sales—are beginning to reach Ontario's long-term average sell rate and stabilize once more. The result, as mentioned, is a huge spike in average home prices. At the crest of this wave are London homeowners, whose home prices surged to 30% (year-over-year), according to WOWA figures. Hamilton homeowners were close behind, with home prices appreciating by 25%, and the Greater Toronto Area hit 15%. Ottawa reached a more modest, but noteworthy 10% gain, giving the Ontario market a yearly gain of 21% (from April 2021 to April 2022).

After 2022's first quarter, the average value of Ontario homes exceeded the $1 million mark—not bad for an entire province. Yet in February 2022, the average price started to show signs of a gradual decrease, and since monthly sell rates fell almost back to the 10-year monthly moving average (see CREA's figures from May 16, 2022), it's likely some flattening out of these record averages will occur in the coming years. Short of some other major geopolitical event, one should expect the Ontario housing market to remain high, but not appreciate much beyond the record peaks—especially as central banks continue to wrestle with their inflationary issues, causing less faith in the stability of fiat currencies than ever. The full economic ramifications of the government and banking industry's efforts since 2020 remain to be seen.

In response to these issues, the Office of the Superintendent of Financial Institutions (OSFI) decided to raise the Mortgage Stress Test's benchmark in 2021. Since June of that year, the rate was increased to 5.25% for both insured and uninsured borrowers (you can calculate your projected mortgage expenses with our handy mortgage calculator). The most likely effect of this is that the affordability of borrowers—whether insured or not—will be greatly limited, even if Bank of Canada reigns in interest rates once more. At the time, Canada's inflation and CPI figures were at their highest point since 1991, and it's doubtful if any interest rate adjustments can affect the hard realities of devalued commodities, the effects of which real estate property values are not immune.

At the same time, first-time buyer incentives and programs were funded, which most certainly will have some impact on keeping monthly buy rates from continually falling without settling into a steadier rhythm (whether slightly positive or negative). It's certainly possible for them to go below that 10-year average, and whether or not this happens will largely depend on economic trends overall. It's not clear whether or not rising costs of living will affect the decision of Canadians to buy property one way or the other.

Even lower net worth homeowners know that long-term property ownership is one of the best long-term wealth and investment strategies, even under dire economic conditions. More negative economic events could, in fact, spur them to put the eroding value of Bank of Canada's currency into real estate. This would be one realistic scenario that would have a positive impact on the monthly sell rate. If conditions become too poor, aspiring homeowners may not be able to purchase properties if the value of the Canadian Dollar plummets. It, like all fiat currencies, most certainly is going to lower; however, if it can at least lower at a consistent rate (rather than suddenly dropping off), those first-time buyer incentives just may pull them through.

After the devastating effects of government lockdowns, government agencies stepped in to try and patch up the damage. They know that a populace without a housing market sufficient to meet their needs is so fundamental to basic economic functioning that even Trans-Pacific supply-chain scares don't outmatch housing market issues that could affect huge portions of the Canadian population. Whether out of kindness or due to the cold, hard realities of needing to keep an already incensed populace at an even keel, Canada predictably stepped up their homebuying incentives in 2022.

Several of the programs and rebates they introduced or funded anew include:

As far as the effects these programs have on the Ontario real estate market, these programs are hit and miss. To use one example, the First-Time Buyer Incentive had only been applied at a fifth of its $1 billion capacity, and it’s particularly unpopular in Toronto—perhaps because home values were already so much higher than the national average and mostly outside the limits of the program's terms. Since Ontario's average home values have been higher than in most other provinces for some time, by and large, these first-time homebuyer incentives aren’t making as much of a direct impact in the Ontario housing market as in other parts of Canada. Most potential Ontario buyers are thus weighing the pros and cons of each program as they consider how to choose the right mortgage.

What the programs have done, though, is alter the landscape of Ontario's housing markets in terms of occupied and unoccupied properties in lower-value regions, which has an effect on future estate development. Even high-value luxury estate developers, for the most part, aren’t usually able to simply buy an entire neighborhood when the land itself is worth more than the more modest houses on it.

New estate development is an almost all-or-nothing endeavour as far as access to land goes— there’s little but tentative investment behind new development except where investors are reasonably certain that the entirety of an area can be secured. Since lower-value properties in less affluent parts of Ontario are more within reach of working-class families (assuming the wider economy remains steady), the options for developers will likely not expand as these programs give new homeowners (along with shared government interests) more ability to occupy land, however dispersed it may be.

This won’t show up in the statistics that matter most to overall home values and purchasing rates, but it has a significant impact on the future investment strategies of luxury home developers—they would do well to watch measures that reflect the geographical realities of Ontario home ownership (such as occupancy rates per area) rather than the purely financial measures discussed above.

When it comes to high-end real estate investments and additions to one's portfolio, it’s harder to purchase high-value properties without accepting some loss. As far as new developments go, investors need an ally with expertise in an increasingly crowded—but all the more lucrative— market. When already wealthy neighborhoods experience record-breaking boosts to property values, the value of real estate activity goes up, especially construction. This makes it all the more important to keep a tight watch on new opportunities as they present themselves—not after—since there’s a lot of competition.

Even as the average value of Ontario homes starts lowering after its phenomenal peak in the first quarter of 2022, people are still extremely eager to get involved in Ontario's hottest luxury housing market, even as it has less space to spare. That's why it's extremely helpful to stay apprised of new Ontario listings and pre-construction investment opportunities from an experienced realtor who you can trust.

Born and raised in Toronto, Russell Robson lives the Ontario real estate market, providing residential and commercial real estate solutions in even the most crowded market conditions. With an innovative approach and a deep appreciation for the entrepreneurial spirit, you can rest assured you’re in good hands with Russell Robson’s team of dedicated realty professionals, who act quickly and with their clients' fullest interests at heart. Get in touch, and take part in the once-in-a-lifetime investment opportunities available in and around Toronto and the Greater Toronto Area. You can contact us online or call our office at (647) 292-3980—we look forward to hearing about your goals and needs in Ontario's phenomenally rewarding real estate market.

_{*Header photo courtesy of Unsplash}