High interest rates and economic uncertainty are keeping first-time buyers from moving off the sidelines and into the homeownership market. But overall demand for housing is still strong thanks to record population growth and a relatively resilient economy. However, more of that demand has been pointed at the rental market.

Renting

Would-be first-time buyers, who have seen affordability erode over the past year-and-a-half due to high mortgage rates, have remained in the rental market. Many new permanent and temporary residents have also turned to the rental market for housing, at least initially.

The supply of units for rent has increased at a faster pace than rental transactions over the past year. Many investor-owned units have been listed for rent, in response to very strong rent growth and, quite possibly, the actual or potential introduction of tighter regulations surrounding vacant units and short-term rentals. Despite a better-supplied market, competition between renters has remained strong enough to sustain above-inflation rent increases.

Renters can expect this trend to continue for the foreseeable future, underpinning the need for a sustainable pipeline of rental housing supply.

Homeownership

In October, the GTA real estate market revealed home sales were down, but prices held up relative to last year in many market segments.

Competition between buyers remained strong enough to keep the average selling price above last year’s level in October and above the cyclical lows experienced in the first quarter of this year. The Bank of Canada also noted this resilience in its October statement. However, home prices remain well-below their record peak reached at the beginning of 2022, so lower home prices have mitigated the impact of higher borrowing costs to a certain degree.

Home sales will pick up quickly when mortgage rates start trending lower, likely in the second half of 2024, and buyers will experience much more competition in the absence of a marked improvement in the supply of listings.