Toronto’s real estate market does not exist in a bubble. Outside forces affect the real estate market. Economists and real estate observers and experts use these factors to determine the current status of Toronto’s real estate market and to predict real estate trends. Organizations such as the Canada Mortgage and Housing Corporation (CMHC) come up with reports annually to estimate the increase and the decline of various parts of the sector, like price growth and unit sales. These reports help investors and casual buyers determine the value of their property in the coming years. So far, real estate markets in Toronto—and Canada in general—are considered as a pillar of strength these past ten years. So how do organizations like the CMHC determine the value of real estate in Toronto for the coming years? They use key market factors such as mortgage rates, income and employment, net migration, and demographics.
Mortgage rates affect Toronto’s real estate because higher rates could ease the demand for housing. Mortgage, for those unfamiliar with real estate, is a transfer of interest in properties, from the property owner to the mortgage lender. The higher the mortgage rates, the higher the price of a property is. Higher mortgage rates could be too much for first-time property buyers in Toronto. These past few years, mortgage rates have been moving slightly higher in Toronto, so a rise in the cost of real estate properties is to be expected.
Employment and the income of the country’s population are also direct factors in real estate. Citizens of Toronto—and Canadians in general—are employed, with employment rates close to full-employment. Also, the rise of income for workers will continue due to the country’s demand for workers. High employment rate and high income stimulate a demand for property, because citizens have money to spend. However, while the numbers are still encouraging, it would not be as much compared to past years. Migration also affects Toronto’s real estate market due to the same reason: the purchasing power of the population. Visitors could mean potential investors and buyers, which could negate the impact of the high mortgage rates. According to estimates, migration should remain strong. And although the exact numbers are unknown, foreigners—mostly Iranians and Koreans, among others—have already bought a bulk of luxury properties in Toronto. In fact, foreigners are one of the main clientele of luxury real estate projects by the Ritz-Carlton. The demographics of Canada is also considered as a factor. The population of Canada is already aging, which means the birth rate is decreasing. With the decline in the natural population of Canada, the demand for real estate will also go down with it. However, the influx of foreigners can slow the effects of the aging population.
*See Toronto Real Estate blog for more information.