Housing affordability is unlikely to return to Toronto anytime soon, even in the event of a recession on par with one of the worst economic downturns in the province’s history, according to a new report from Desjardins’ leading economists.
The report outlines three possible outcomes for the future of the city’s housing market, including the worst-case scenario, which looks at a “1990s-style Ontario recession” that would drive average home values down by 16 per cent by the end of next year and 30 per cent by the end of 2025.
Those declines would be in addition to the housing correction that has already pushed prices down across the GTA.
The average selling price of a Toronto home across all property types, in fact, peaked at $1,334,062 in February 2022 before dropping to a low of $1,037,542 amid what RBC previously called a “historic” housing correction.’
“Even if that improbable outcome were to materialize within the next three years, it would only bring Toronto’s home price to per capita disposable income ratio back to still stretched, late 2015 levels,” the report notes.
“After years of being priced out of the market, many prospective Toronto homebuyers now sense an opening with a recession looming. But even in the direst of economic scenarios, we don’t see affordability returning to Canada’s largest city anytime soon.”
The report, which is authored by Jimmy Jean, the financial group’s chief economist and strategist, and principal economist Marc Desormeaux, adds that a recession of that magnitude would take a massive economic toll on the province.
“Such a significant price decline could likely only come at a massive economic and social cost. Compared to our base case Ontario forecast, a 1990s style recession would result in a more than $35B reduction in employment income and almost half a million total job losses by Q4 2025,” the report reads.
In the most “optimistic scenario,” with persistently strong population growth and a crunch on the supply side that results in a limited number of new listings, Toronto could see prices exceed the peak of February 2022 by early 2025.
“Although this would be great news for property owners, it is the least positive of our scenarios for prospective buyers. The sales price to disposable income ratio per working aged person would exceed its pandemic era peak by mid decade,” the report continues.
In the most likely scenario, Toronto house prices would hit bottom by the end of 2024, reaching about five per cent below July 2023 levels.
“Combined with a smaller percentage wise decline in per person incomes, we forecast a home value trajectory that would slightly improve affordability versus current levels. Unfortunately, this would still only result in a return to early 2021 levels for the price to disposable income ratio per person over age 15,” the report reads.
The analysis, the report’s authors say, highlights the “extremely difficult starting position” first-time homebuyers and policymakers face.
“Striking as these results may be, we’ve always known that restoring housing affordability was a long run process. Our analysis reinforces that view, as well as the need to successfully implement ambitious plans to boost the housing supply,” the report states.
“In addition to the fundamental human rights questions raised by severely stretched affordability, our work has previously highlighted the speed with which young people are leaving Ontario, especially the GTA, in search of cheaper accommodations. Thus, despite near record population growth, Ontario risks eventually losing the entrepreneurship and economic dynamism that young people bring.”
The authors said the discussion on housing affordability in Canada needs “a change in tone.”
“All levels of government and the private sector have to work together to address the herculean challenge of adequately increasing new homebuilding. Toronto’s—and indeed Canada’s—status as a welcoming and prosperous place to live depends on it,” the report concludes.
