Where Ontario’s housing market is headed in 2024

The pace of home sales in Ontario in 2023 hit lows not seen the turn of the century, and with little evidence that mortgage rates will drop significantly any time soon, forecasts are predicting the sluggishness to continue into early 2024.

While prices have dropped somewhat from their pandemic-driven highs, the combination of high-interest rates and buyers waiting for prices to tumble further has created a slow sales market throughout much of the province, according to a range of industry information.

The number of home sales in the Greater Toronto Area in 2023 is on track to be lower than in any year since 2001, when the region’s population was roughly 25 per cent smaller than it is today.

The latest figures available show the number of homes sold across Ontario last year to be down nearly 13 per cent from the previous year, described by the Canadian Real Estate Association as a substantial decline.

CBC News interviewed three experts on the real estate market to find out what they expect to happen in 2024.

Expect ‘continued stagnation’ in sales

There’s general consensus among those experts that sales volumes will remain sluggish in the first part of 2024, until or unless mortgage rates come down significantly, or sellers start accepting lower bids.

“The general trend we’re probably going to see is one of continued stagnation,” said Ron Butler, a broker with Butler Mortgage.

He doubts that mortgage rates will drop quickly enough or low enough to jolt reluctant buyers off the sidelines in the early part of 2024.

John Pasalis, president of Realosophy Realty Inc., adds that sellers have yet to bring down their asking prices deeply enough to offset the increased borrowing costs that buyers face.

“It’s the combination of these high prices and high interest rates that is keeping a lot of buyers out of the market right now,” Pasalis said.

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TD economist Rishi Sondhi predicts sales volumes to remain relatively low in the coming year, although better than what the numbers were in 2023.

“We think that the bottom has probably been reached,” Sondhi said. “Sales levels were just so darn low in Ontario [in 2023]. It’s hard to go lower from there.”

Where will prices head?

There’s not a lot of consensus on what will happen with prices, in part because of supply and demand factors that are expected to have conflicting effects.

For instance, while decade-high mortgage rates are suppressing demand, rapid population growth is pushing it upward and new construction isn’t keeping pace.

Real estate firm Royal LePage is forecasting a six per cent rise in the average home price in the Greater Toronto Area by the end of 2024, and a 4.5 per cent rise in Ottawa.

By contrast, real estate firm ReMax is forecasting an average three per cent drop in prices in the GTA for 2024 and a two per cent increase in Ottawa.

Butler says “buyer sentiment” will have a significant impact on prices in 2024.

“If you feel that these prices are really too high and that they will come down, no matter how motivated you are to buy a home, you will have a tendency to wait and see,” he said. “It’ll turn around eventually, but right now I think that buyer sentiment is entrenched.”

New home construction forecast to slow

Premier Doug Ford’s government is now entering the third year of its 10-year timeframe for the promised construction of 1.5 million new homes in Ontario, and has yet to achieve the annual pace needed to achieve that target.

Final figures for 2023 aren’t in yet but, as of November, the pace of new construction was slower than the 96,000 housing starts in the previous year.

Forecasts are now predicting the pace will slow even further this year. That’s because developers are struggling to finance projects because of high interest rates, inflation has pushed up the price of building materials and a labour crunch continues to hamper the construction industry.

“We’re expecting housing starts to fall in 2024,” said Sondhi. The evidence is based on a drop in sales in the pre-construction market over the past two years after mortgage rates began to climb.

Sondhi is not forecasting a collapse in new home construction, partly because of expected growth in purpose-built rental housing, fuelled by the provincial and federal governments exempting those projects from HST.

Meanwhile, figures show that around 30 of Ontario’s largest municipalities will fail to qualify for a share of the government’s $1.2 billion Building Faster Fund in 2024 because their housing start numbers in 2023 fell short of the mark.

Uncertainty for the condo sector

Condominiums are the segment of Ontario’s housing market that looks to be in the roughest shape in 2024, in part because a large proportion are owned by investors.

“As their mortgages come up for renewal, it’s going to be harder to afford those condos,” said Pasalis.

“Over the next 12 to 18 months, we’ll probably see more investors unloading properties just because they can’t afford to have so much debt at today’s interest rates,” he said.

Butler adds he expects to see many investors trying to sell off small condos in urban centres because their plans to turn them into short-term rentals fell through.

As of the end of November, the Toronto Region Real Estate Board had reported 23,128 condo sales in 2023 — a 44 per cent decline from the same period in 2021.

Sales of new condos in the GTA appear to have fallen even more sharply, dropping by 47 per cent in a year, according to a November report from research firm Urbanation.