How to look at the new housing market today

The Ontario housing market has undergone significant changes in recent years, characterized by fluctuating prices, shifting demand and evolving trends. There was a period of inactivity and plunging rents during the early part of the pandemic, followed by surging sales and pricing in 2021 and early 2022, and then very slow transaction activity and falling values in 2023 into 2024. The current landscape presents both challenges and opportunities for new home buyers and investors.

In terms of new housing activity in the Greater Toronto and Hamilton Area (GTHA), single-family home prices have seen a dramatic decrease, dropping 31 per cent from the 2022 market peak to an average of $1.7 million. Similarly, condo asking prices have fallen by 27 per cent since their peak two years ago, and townhouses have experienced a 24-per-cent decline from early 2022.

Long-term price trend

There are many people proclaiming that, due to these drops, the market for low-density housing is now oversupplied. However, a long-term price trend shows a different story. The average price for a single-family home in the Census Metropolitan Area (CMA) has increased significantly over the last quarter-century, rising from $275,000 in 2000 to $1.39 million in 2023 according to data from CMHC on absorptions. This increase reflects the persistent demand and limited supply in the market, which has seen a drop in single-family completions from 25,000 in 2002 to just 6,000 in 2023.

In specific regions, such as Brampton and Vaughan, there were significant price increases in single-family homes during 2021 and 2022, followed by declines in 2023 and 2024. For example, Brampton saw increases of 24 and 51 per cent in 2021 and 2022, respectively, before dropping seven per cent and 12 per cent in the subsequent years.

The lack of new single-family houses being built has pushed demand into the highrise market, which accounts for the majority of the new home activity.

The condo market in the Greater Toronto Area (GTA) also presents a mixed picture. While new condo price declines have been relatively small, the reduction in prices is constrained by the limited room developers have to lower prices further and still be profitable enough to qualify for construction financing. In Toronto, prices decreased slightly from $1,617 per sq. ft. (psf) in 2022 to $1,583 psf in 2024. However, it should be noted that these prices are not net of incentives, which have been very prevalent over the last two years.

Significant undersupply

Suburban condo prices in the GTA dropped by 2.6 per cent annually in 2024, while the Hamilton area experienced a 3.2 per cent year-over-year decline.

New home sales have dropped significantly, as buyers see an abundance of resale listings and assignment opportunities. New apartment completions in the Toronto CMA reached 36,763 units over the past 12 months, surpassing the 10-year average of 22,100 units. However, the number of apartment units under construction is starting to decline, falling from 94,000 to 88,000, though this remains above the long-run average of 63,500 units.

As sales slump, construction starts do not occur, and the number of units under construction declines, we can see a period in 2027 and 2028 where the market is significantly undersupplied. This is where the potential opportunities exist for investors, buying at the right price today, in a project with expected occupancy in late 2027 and into 2028.

Alan Leela from Vantage Developments was a guest on the Toronto Under Construction podcast where he mentioned the importance of a comprehensive financial plan for developers, including funding sources, budgeting and cash flow management. Vantage has a private equity approach to real estate development, which underscores the significance of data-driven decision-making. This mindset can be adopted by the individual investor as well. Do your research, and make an educated bet on the future of the market.

Leela also mentioned the importance of site selection for a developer, and how his firm must balance emerging markets and established ones. For the more seasoned pre-construction condo investor with a portfolio of suites, emerging areas with limited development but high-order transit can make for great buying opportunities.

As I have emphasised in many of my articles, market research is fundamental to making informed decisions. Buyers need to understand local market conditions, demand for properties and target demographics.

'Amenities war'

Another factor to consider for buyers is the unit design/floorplan and the shared amenities, which influence their attractiveness to buyers and tenants. The current trend in the GTA shows an “amenities war,” with developers offering extensive shared spaces such as co-working offices, party rooms, dog wash stations, theatre rooms, rooftop pools, community gardens, gyms with saunas and more.

Sustainability is another critical consideration. Developers are increasingly incorporating sustainable practices and energy-efficient features to appeal to environmentally conscious buyers and tenants, and investors should consider the long-term savings at these Green projects.

For investors looking to rent their units out, the high number of unit completions is flattening rent levels for new buildings completed over the last 15 years. Rents for newer buildings have remained relatively stable in 2024. Condo rents saw a significant increase from the pandemic-impacted rates of 2021, rising from $3.27 to $4.15 psf in 2022-23.

The market is significantly challenged today, but population growth is near record highs. Future supply will be constrained and interest rates are expected to decline over the next couple of years. There are signs of a future recovery, and buyers that understand the market and its direction in specific pockets of the Ontario new housing market will be handsomely rewarded. Good luck.