Rising unemployment, particularly in the Greater Toronto Area, is cooling housing demand.Evan Buhler/The Canadian Press
The Greater Toronto Area housing market in August, as tracked by the Toronto Regional Real Estate Board (TRREB), paints a bleak picture. Average home prices have fallen to levels last seen in February, 2021.
Adding to the grim outlook, nearly 3 per cent of current listings are power-of-sale properties, while the region’s unemployment rate has climbed to 9 per cent, the highest in 12 years, excluding the anomalous period during the COVID-19 peak in 2020–2021.
The Toronto housing market story has two parts: first, the reality of current home prices after more than three years of cooling; and second, the looming question of where the market is headed over the next 12 months.
Average prices are now more than 20 per cent below their February, 2022, peak. As the chart above shows, values have dropped beneath February, 2021, levels, effectively rolling the market back 4.5 years. After adjusting for inflation, average prices have fallen even further, to below February, 2017, levels.
Current market conditions and broader macroeconomic pressures both point to further weakness. On the supply side, inventory is near record highs, while the sales-to-new-listings ratio sits at 37 per cent – firmly in buyers’ market territory.
A troubling new indicator comes from Ontario real estate agent Jon Flynn, who has been tracking power-of-sale listings by reviewing corporate sellers, mainly financial institutions. His analysis shows at least 790 properties – nearly 2.9 per cent of all TRREB listings – are power-of-sale transactions.
In such cases, lenders can sell a property after default without first transferring ownership into their name. Proceeds cover debts and costs, with surpluses returned to the borrower and shortfalls remaining the borrower’s legal responsibility.
The surge in power-of-sale listings highlights the depth of financial strain in the market, nearly doubling in just one year – from about 400 listings in August, 2024, to today’s level.
On the macroeconomic side, rising unemployment in Canada, and particularly in the Greater Toronto Area, is weighing on housing demand. Job market uncertainty means fewer buyers are willing or able to enter the housing market. In July and August, the unemployment rate stood at 9 per cent and 8.9 per cent, the highest levels since September, 2012, excluding the COVID-19 peak.
At the same time, uncertainty hangs over the U.S.-Mexico-Canada Agreement on trade, which is set to be renegotiated with the United States next year and could bring new friction to Canadian exports. As Richard Dias, a macro strategist at IceCap Asset Management Ltd., put it: “Unemployment is likely to remain high, and even though people are clamouring for [interest] rate cuts, any cuts that do come are unlikely to shift the job market’s short-term trajectory.”
History shows that when money supply grows significantly faster than headline inflation, asset prices, including real estate, tend to rise faster than consumer prices. Therefore, over the long term, such as a 10-year horizon, Toronto home prices are likely to outpace inflation.
In the short term, however, the market appears likely to fall further before recovering. This is not necessarily bad news, as Toronto has long been among the least affordable metropolitan areas in North America.
Hanif Bayat, PhD, is the CEO and founder of WOWA.ca, a Canadian personal finance platform.
