Housing Market Outlook For GTA

Prepared by Luke Tao
as of April 10th, 2017



  • Total housing starts will edge lower over the next two years
  • Affordability concerns will drive sales of existing homes lower
  • Price growth will continue at a more moderate pace
  • Weaker oil prices and Canadian dollar is expected to boost employment and export

1.  GTA Market Watch Outlook

Sales Up and Listings Down in February 2017

Toronto Real Estate Board reported 12,077 residential sales through in March 2017. This represented a 17.7% increase compared to March 2016. For the TREB market area as a whole, annual sales growth was strongest for condominium apartments and detached houses.


For the TREB market area as a whole, the average selling price was $916,567, up by 33.2%, with similar annual rates of growth in the low-rise and condominium apartment segments. The MLS® Home Price Index (HPI) Composite Benchmark Price was up by 28.6% year-over-year.


The number of new listings also increased on a year-over-year basis, at 17,051, 15.2% increase compared to March 2016. The strongest growth in new listings was experienced in the detached market segment. While new listings were up strongly compared to last year, the rate new listings growth was still lower than the rate of sales growth. As a result, GTA market conditions continued to tighten.


It has been encouraging to see that policymakers have not implemented any knee-jerk policies regarding the GTA housing market. Different levels of government are holding consultations with market stakeholders and TREB has participated and will continue to participate in these discussions. Policy makers must remember that it is the interplay between the demand for and supply of listings that influences price growth. Strong competition between buyers continued to cause high levels of price growth in all major market segments.



Annual rates of price growth continued to accelerate in March as growth in sales (DEMAND) outstripped growth in listings (SUPPLY). A substantial period of months in which listings growth is greater than sales growth will be required to bring the GTA housing market back into balance. As policy makers seek to achieve this balance, it is important that an evidence-based approach is followed.


The Average prices in Scarborough (E05), Markham (N11), Richmond HIll (n03), North York (C14) and Downtown Toronto (C01) are as follows:


2. Forecast Home Sales in 2016 and 2017


Existing homes sales in the Greater Toronto Area (GTA) will moderate to 91,000 in 2016 and 87,500 in 2017 as affordability concerns dampen home buying activity, and will reflect some pull-back from the record breaking of 101,299 homes sold in 2015.  


The Toronto population increased by an estimated 1.6 per cent year-over-year, and more importantly grew faster among those aged 25 to 54 years at 1.9 per cent.  Growth among this age group, tends to be the most active in the homeownership market (both in terms of first-time and move-up buying).  Stronger employment growth resulted in the overall unemployment rate falling to its lowest rate in seven years.


The GTA’s average MLS price of an existing home will increase by 4.0 per cent in 2016 from the previous year and 2.1 per cent in 2017 to reach $647,100 and $660,700 respectively.  Supply of resale homes are expected to increase over the next couple of years as some newly completed but unsold condominium apartment units are listed for sale.  Additionally, existing homeowners will continue to list their home and take advantage of prices.  These factors will result in loosening market conditions.  Such conditions are likely to produce more moderate price growth.  

2.1  Resale Market


The forecast for lower price growth in the GTA will help to moderate the pace of declining affordability.  Moreover, with an outlook for increased mortgage rates, monthly mortgage carrying cost will rise and many households will seek more affordable housing options that can match the growth in their income – or in some cases forego ownership all together.


In terms of housing type, single-detached and townhouse markets will remain tight over the next two years.  Demographic fundamentals suggest low-rise housing demand will experience sellers’ market conditions over the forecast period.  Demand pressure is likely to result from a fast growing number of baby boom echo households who are beginning to enter into their child rearing and prime earning years and some will be seeking larger homes.  This strengthening demographic demand will be met with tight supply, which is a result of low inventory of low-rise dwellings and a large population of mature existing homeowners who aren’t likely to downsize.  For the same reasons this will also put demand pressure on larger units in condominium apartments.  A growing gap between the prices of low-rise homes and condominium apartments will likely shift the historical preference that young families have for homes with backyards towards high and mid-rise condominium buildings.


Within the GTA, areas that will see the greatest demand for existing homes will be ones catering to price sensitive first-time buyers seeking affordable low-rise housing.  Mostly in the 905 region, these are likely to be in parts of Peel, Halton and Durham Regions.  Alternatively, those households seeking to live in central locations within urban settings will migrate to neighbourhoods that are transit friendly in the City of Toronto, thus sustaining the current high demand for homes in the core.  Often the most affordable housing option in these areas will be in the form of condominium apartments and some townhomes.  These sub-markets will likely see sales activity and price growth well above the CMA averages.


The forecast sales for different types of homes are summarized in Chart 7.1


2.2  New Home Market


On the heels of the strong year of housing in 2015, construction activity in the Toronto CMA will ease over the next two years.  Total housing starts will edge lower by five per cent to 35,950 units in 2016 from the previous year and decline further to 32,500 units in 2017.  Total housing starts next year will fall below the annual average rate of household formation of about 37,000 recorded between the 2006 and 2011 Census.


Therefore, more low-rise home starts are expected in 2016 with single-detached home starts expected to reach 9,000 units.  Rising costs associated with land and labour will curb new single-detached homes sales next year and as a result, single-detached starts will fall to about 6,500 units in 2017.  The more affordable townhouse sales will continue to gain ground and its starts are expected to top 4,500 units in both years.


Affordability concerns will help to keep demand for condominium apartments strong.  With the required income levels to own a home continuing to escalate, firs-time buyers will be drawn to the relatively more affordable high-rise market.  The baby boom echo generation (those aged between 25-35 years approximately), who typically embrace the ‘live and work’ lifestyle will continue to embrace the locations of many condominium developments-which are often situated within walking distances to transit and entertainment.  Investors, who continue to make up a growing share of condo purchasers, will continue to invest in pre-construction sales and be lured by steady price growth and low vacancy rates.  So too will empty nesters looking to downsize to smaller homes look to purchasing condo units within easy access to services and amenities.


Lack of inventory of new single-detached homes will continue to exert upward pressure on their prices.  The average price of a pre-construction unit of a single-detached home will grow by 5.3 percent to $940,000 in 2016 and a further 2.1 percent to $ 960,000 in 2017 - though at a slightly lower rate due to affordability concerns shifting some demand towards lower priced townhouses.  Unlike in the condo market where the unsold inventory level has been trending higher in 2015, it has stayed low for single-detached homes at around 220 units.  While the average price of a new single-detached home is expected to show stronger growth, the median price growth is expected to be subdued over the next two years reflecting a larger share of expensive homes being sold.  So far this year, the share of higher priced single-detached homes in expensive areas in the 905 regions such as Richmond Hill, Vaughan and Oakville has grown and this trend is expected to continue.

3.  Condo Market


Apartment starts, primarily driven by condominium structures, will dominate housing construction in the next couple of years and exceed 20,000 units in each year.  Pre-construction sales of condominium apartments have exceeded 35,000 units in the past 32 months.  Based on CMHC estimates, these units will begin construction over the next two years.


While construction of rental units have lagged that of condominium apartments for the past decade, low vacancy rates in the primary and secondary rental markets entice developers to channel resources to purpose-built rental projects in the Toronto CMA.  Total rental starts are expected to reach about 1,850 units in 2016 and a further 2,000 units in 2017.


4.  Rental


The average vacancy rates for purpose-built private apartments in Toronto will edge higher to 1.9 per cent in 2016, but will remain virtually unchanged at 2 per cent in 2017.  Rising competition from newly completed condominium units (some of which will be used as rental properties) will contribute to the rising vacancy rate.


Despite the slight forecast increase in the vacancy rate, rental demand in Toronto will remain strong thanks to improving employment opportunities for youth as well as eroding affordability in the home ownership market.

5.  Economy


While Toronto is not immune to the prevailing global economic challenges and uncertainties, it has been above the trajectory of the national and provincial economies.  Total employment in the Toronto CMA is forecast to grow at 1.7 per cent in 2016 and 1.3 per cent in 2017.  The share of full-time jobs is expected to recover slightly after hitting an all time low of 82 per cent in 2014.  Unemployment rate is projected to fall to 6.8 per cent in 216 and then to 6.7 per cent in 2017.


Demographic shifts will gradually start favoring younger workers.  Population aging, with some baby boomers leaving the world force, will curb growth of the labour force and thus generate downward pressure on the unemployment rate.  Improved employment opportunities for younger workers will provide more support for housing demand down the road.


The strengthening U.S. economy and lower Canadian dollar are expected to benefit employment in manufacturing industries in the Toronto CMA.  The utilities and transportation sectors will continue to invest heavily in a large range of projects across the region, such as Spadina subway extension, the cross-town LRT, the York region VIVA rapid ways, the Mississauga transit way, the makeover of Union Station, the 407 toll road extension, and the expansion of the HOV network.  These investments will provide a lift to the local job market.  Likewise, enticed by a lower loonie, foreign tourists will support local accommodation and food related service industries.  Employment in financial industries will see slower growth as some trickle down effects from the fallout in the oil industry gets passed down.  While employment trends vary by industry, overall the Toronto job market will remain in an expansion phase.


The rate of income growth will remain ahead of the general rate of inflation over the next few years, nevertheless it will slow from 2015, and grow at a rate of about 2.5 per cent in 2016.


Net migration to the GTA is forecast to show some modest improvement over the next few years to average around 60,000 annually.  With Ontario’s economy becoming a growth leader, the interprovincial outflow out west is expected to ease.  Furthermore, more immigrants will choose Toronto as their final destination.  Yet Toronto will continue to see a net outflow of residents to communities surrounding the GTA such as Guelph and Hamilton with more favorable housing affordability conditions.


6.  Mortgage Rate Outlook


Mortgage rates are expected to begin to rise moderately from current levels late in 2016


Mortgage rates are expected to continue trending close to current levels, supporting housing demand.  However, consistent with the view of Canadian economic forecasters, CMHC expects interest rates to begin to rise moderately from current levels late in 2016, contributing to a modest slowdown in housing markets.


According to CMHC’s base case scenario for 2015, the 1-year mortgage rate is expected to be in the 2.60 - 3.30% range, while the 5-year rate is forecast to be within the 4.10 - 5.20 % range.  


For 2016, the 1-year mortgage rate is expected to be in the 3.00 - 3.80% range, while the 5-year rate is forecast to be within the 4.70 - 6.00% range.  


For 2017, the 1-year mortgage rate is expected to be in the 3.90 - 4.80% range, while the 5-year rate is forecast to be within the 5.10 - 6.50% range

7.  Risks Analysis


Upside Risks

  • Prevailing low vacancy rates, low Canadian dollar and global uncertainty could continue to fuel investor demand into the GTA real estate market.
  • Stronger than expected domestic demand in the United States that would positively impact Canadian exporter and likely drive greater-than-expected housing demand.

Downside Risks


  • Strong price acceleration in 2016 reflects a larger share of sales of pricier homes.  The rise in house prices has not been matched by growth in personal disposable income, giving rise to a modest risk of overvaluation.


  • A broader slowdown in the economic growth of China will negatively affect Canada through weaker demand for Canadian exports as well a downward pressure put on commodity exports


  • While a soft landing in the housing market remains the most likely scenario, near record-high house prices and debt levels relative to income leave households vulnerable to a potential correction.  A disorderly unwinding of household sector imbalances, should it materialize, could have sizable negative effects on the economy.


  • The level of completed and unsold condominium apartment units per 10,000 population is above and the rental vacancy rate is below their respective historical averages in the GTA.  However, inventory management is necessary to make sure that the current number of condominium units under construction does not remain unsold upon completion


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