Long-term view shows Toronto and Vancouver home prices remain elevated despite recent declines
Despite detached home prices in Toronto and Vancouver posting year-over-year declines in the first half of the year, a longer-term view shows prices are still elevated, and in many cases higher compared to two or three years ago.
In its Hot Pocket Communities Report released Tuesday, RE/MAX found that detached homes in nearly 93% of the 82 districts it analyzed in both cities—which included downtown neighbourhoods and exurbs—were cheaper in the first half of 2023 compared to the previous year.
The exact amount varied between as little as 1.5% in West Vancouver to a whopping 25.6% in the Toronto exurb of Brock.
“Anxious homebuyers were quick to identify the bottom of the market and jumped in with both feet in the second quarter of the year,” Christopher Alexander, president of RE/MAX Canada, said in a statement.
RE/MAX said the easing of home prices was the biggest driver of buying activity in the first half of 2023, especially for existing homebuyers looking to upgrade their current residence.
Home prices remain elevated from a historical context
However, historical RE/MAX data show that despite the recent price drops, valuations remain on par with—or still above—pre- and early-pandemic prices.
In Toronto, prices in the district encompassing the Don Valley Village and Henry Farm neighbourhoods—among the cheapest in the downtown core—dropped by 10.8% to nearly $2 million in 2023. In the previous year, prices in the district had jumped by 17.4%, from $1.87 million to $2.1 million.
Vancouver East saw an 8.1% price drop in 2023, but that followed last year’s whopping 17.3% price gain.
And when it comes to towns outside of Toronto and Vancouver, the situation is even more stark.
In the Whistler/Pemberton area, outside of Vancouver, detached home prices declined 24.8% between 2022 and 2023, according to RE/MAX data. However, they also rose by 39.3% the previous year, more than cancelling out any benefits from this year.
Detached home prices in Orangeville, outside of Toronto, dropped by 14.3% in 2023, but they had shot up 26.47% the previous year.
In other words, prices for detached homes in these neighbourhoods largely haven’t declined over time.
“When we start to compare them over three years, we see virtually no price reduction because of what pricing was in 2020-2021 to where it is today,” Elton Ash, executive vice-president of RE/MAX Canada, told CMT in an interview. “Ultimately, if you purchased a home prior to 2020 and you sell today, you’re likely going to sell for higher than what you paid for it.”
The impact of higher rates and low supply
RE/MAX cites a lack of housing supply as the largest factor driving affordability issues today.
It says that nine out of the 16 districts it surveyed reported inventory shortages. This included the Gulf Islands and Whistler/Pemberton, where new listings are down by nearly 43% and 23%, respectively.
Ash says homebuilders are slowing their construction projects largely because of higher interest rates, inflation and uncertainty around carrying costs, not to mention buyer uncertainty.
Potential buyers are staying in their homes unless they absolutely need to move, which then reduces demand for new houses to be built. “That then becomes a self-fulfilling cycle,” Ash says. “You can’t get increased inventory if people just aren’t going to move.”
But the housing inventory shortage isn’t new. In 2022, the Canada Mortgage and Housing Corporation (CMHC) concluded that developers would need to build 3.5 million more housing units by 2030 than they normally would to make housing more affordable for the average Canadian buyer.
Ultimately, Ash doesn’t see housing affordability relief in the near term for prospective buyers looking to buy in the greater Toronto or Vancouver markets.
Where the housing market goes from here
With interest rates at historic highs, and the potential for them to rise further, Ash says he expects the market to be muted throughout the winter. But he doesn’t expect that will last.
Assuming interest rates remain under control and the Bank of Canada doesn’t increase interest rates beyond September, Ash expects the spring of 2024 to be a repeat of last spring.
Pent-up demand and higher buyer confidence, along with a stable interest rate environment, could see a return to 2023’s market conditions, he says. That ultimately means higher overall house prices, especially if developers don’t pick up the pace—and anything they do start this year won’t be ready for some time.
“I don’t see inventory increasing a great deal,” Ash says. “I do see buyer demand increasing. So, therefore, pricing will start to edge up next spring.”