Average Toronto home prices on track to hit $2m by 2034

Toronto's home prices could reach an average of $2 million by 2034 if current trends continue, according to a new report from real estate listing website Zoocasa.com.

The report showed that Toronto home prices have risen by an average of 5.6% annually over the past decade.

“Interest rates play a big part in pricing. As rates come down, home prices go up,” the report said. “In the case that rates do begin declining this year, we can anticipate a corresponding price increase in the market overall, meaning we can reach this multimillion-dollar average home value even faster.”

According to the Toronto Regional Real Estate Board's (TRREB) March 2024 report, the current benchmark price of a single-family detached home in the city is $1,708,800.  Toronto houses crossed the million-dollar average in 2021, fuelled by a 17% increase since 2020.

While the $2 million mark looms on the horizon, Zoocasa pointed out that this price point is already a reality in many Toronto neighborhoods.

“Looking at the past two years, average home prices in 43% of Toronto’s neighbourhoods have surpassed $2 million,” the report said.

Based on the past decade's growth rate, Zoocasa projected that the average selling price for homes in Toronto will hit $2 million by 2034. However, if interest rates begin to decrease this year, this milestone could be reached even sooner.

Even traditionally more affordable areas are feeling the pressure. For instance, In Rockcliffe, Smythe, Keelesdale, and Eglinton West, the average single-detached price peaked at $1.6 million in February 2023.

Similarly, neighborhoods like High Park-Swansea, Roncesvalles, and Parkdale, often considered somewhat affordable within the city's priciest areas, have seen average home prices consistently exceed $2 million since June 2023.

On the opposite end of the spectrum, Toronto's most expensive neighborhoods make the $2 million mark seem modest. In affluent areas like Rosedale and Moore Park, or York Mills, Bridle Path, and Hoggs Hollow, prices have soared well beyond $3.6 million, with some homes even crossing the $4 million threshold since 2019.

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Canada's housing plan 'missed the mark' on first-time buyer aid – RESCON

Canada’s housing plan, with its focus on boosting supply, has drawn a range of reactions from industry experts.

While many praise the federal government’s plan, there is growing concern about the lack of immediate measures to address the affordability challenges faced by first-time homebuyers.

Richard Lyall, president of the Residential Construction Council of Ontario (RESCON), praised the government's efforts to enhance the supply of purpose-built rental housing.

“We commend the federal government for seriously trying. There are positive measures here to assist purpose-built rental housing supply. That much is encouraging,” Lyall said in a statement.

However, Lyall said the budget lacks support for first-time homebuyers who have been shut out of the market.

“They are being taxed on new housing at rates which would have crushed their parents and grandparents,” he said. “Why are we doing that to them? Housing is a vital need, and we are taxing it like alcohol and cigarettes. The cost of housing used to be three times the average household income, but now it’s 10 times.”

Taxes, fees, and levies currently make up 31% of the cost of a new home, according to a study by the Canadian Centre for Economic Analysis. With the average home price in Canada standing at $741,000, a household must earn at least $195,000 to qualify for a mortgage.

The disparity between income growth and housing costs continues to widen, making it increasingly difficult for buyers, especially first-timers.

RESCON also noted that many young people are moving away from cities in search of more affordable living options due to the high costs.

While the budget includes positive measures, such as increasing the capital cost allowance rate for apartments and commitments regarding activating Crown land for housing, Lyall believes the government has "missed the mark" in supporting first-time homebuyers.

“The government’s failure to take solid steps to help first-time homebuyers is short-sighted and self-defeating in terms of meeting the challenge of the housing affordability and supply crisis,” he said.

“To ensure the health of our economy, we must do more to help these homebuyers get a foothold in the market. The budget missed the mark on that front. We must help young Canadians who want to buy their first home. They are the future of this cou

Julia Deans, president and CEO of Habitat for Humanity Canada, agreed, “At Habitat for Humanity, we see first-hand how stable and affordable housing transforms lives across generations. Canada’s housing plan presents an excellent opportunity to truly come together and build the Canada we want, one where every family has the opportunity to own a home and create a secure and prosperous future for themselves and their family. We look forward to working with our partners, including all orders of government, to achieve this goal.”

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Budget 'not very helpful' in inflation fight, says former BoC governor

Former Bank of Canada Governor David Dodge said the increase in spending in the federal government’s new budget will make the central bank’s battle against rising prices more difficult.

“It — along with the provincial budgets — is really not very helpful to the Bank of Canada in terms of dealing with inflation,” Dodge said Thursday in an interview on BNN Bloomberg Television. “That’s unfortunate.”

Finance Minister Chrystia Freeland’s budget, unveiled on Tuesday, proposes billions in new outlays on housing, defense and other items over the next few years, with slightly higher deficits the government had previously forecast. 

Provincial governments have gone in a similar direction. Ontario, Quebec and British Columbia, which together have about three-quarters of Canada’s population, have all released plans that include significantly higher borrowing. 

Freeland’s budget document carries the title “Fairness for every generation” — a nod to younger Canadians who’ve been frustrated about the high cost of living and the difficulty of getting into the housing market. Dodge questioned that slogan. 

“It’s these young voters that are going to be saddled with the debt going forward,” he said. 

The budget anticipates C$480.5 billion ($349 billion) in federal program spending this fiscal year, an increase of about C$14 billion compared with November projections from the finance minister. 

Credit rating firm DBRS Morningstar said the spending boost may be “counterproductive” as the Bank of Canada tries to bring inflation back to its 2% target. 

The government is expecting 3.8% growth in nominal gross domestic product this year, versus a previous forecast of 2.4%, the agency said in a report Thursday. That will give a boost to government tax revenue, but “the budget siphons off these projected gains and channels them towards increased spending initiatives, adding to the already expansionary stance of most provincial budgets this season, which could contribute to inflationary pressures,” it said. 

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What impact will Canada's new capital gains tax hike have?

Canada's recent decision to increase capital gains taxes has sparked backlash from the business community, intensifying concerns about the nation's already fragile investment landscape and productivity issues.

The tax hike, part of the latest federal budget, aims to raise billions of dollars from the taxes to address the housing crisis—a significant factor in growing disaffection among younger voters.

Finance Minister Chrystia Freeland said the government will tax Canadian companies and individual taxpayers with annual gains exceeding $250,000 on two-thirds of their capital gains, an increase from the previous rate of half.

While the policy includes certain exemptions, such as for entrepreneurs and the sale of primary residences, it has not been well-received by businesses.

"It's a bit shocking — we're baffled by their decision to move on this," Kim Furlong, CEO of the Canadian Venture Capital & Private Equity Association, told Bloomberg. "It signals a clear lack of ambition for growth and scaling. I am certain that, if not reversed, this will add dire consequences for the continued growth of this part of the ecosystem in Canada."

The Canadian Manufacturers & Exporters and the Canadian Federation of Independent Business argue that this move could worsen Canada's already lagging investment performance.

The Canadian Federation of Independent Business, which represents 97,000 small and medium-sized enterprises, warned higher taxes could "de-motivate" entrepreneurs from expanding their businesses in a country already facing a productivity emergency.

The policy is being implemented in a challenging fundraising environment with low liquidity and minimal merger activity.

Scotiabank economist Rebekah Young described the tax-and-spend approach as potentially shortsighted and risky, given the current economic climate marked by low productivity and economic drivers.

“The government continues to take a punitive approach to corporate taxation despite waning momentum in profitability and compressed margins against persistent inflationary, and relatedly wage, pressures,” Young said.

John McKenzie, CEO of TMX Group, which operates the Toronto Stock Exchange, criticized the policy on BNN Bloomberg Television.

"It sends a very negative message,” McKenzie said. “Let’s be candid, I think this is a mistake for productivity. When you’re talking about more taxes on that income group, you’re talking about the income group that does the most investing into small and medium Canadian companies."

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Longer amortizations seen helping a 'sliver' of mortgage market

Canada’s decision to allow first-time buyers to take out mortgages with 30-year amortization periods on new builds will only affect “a sliver” of the country’s highly priced housing market, according to analysts.

“It’s not a needle-mover; it’s not a game-changer,” Ryan Berlin, senior economist at Vancouver-based real estate firm Rennie, said in a phone interview. “The first-time home buyer segment of the market is really small, and then the presale — the new-home segment of the market — is also small.”

The relaxation of Canada’s mortgage rules — announced Thursday by Finance Minister Chrystia Freeland to ease the country’s housing affordability problems — may increase the attainable purchase price for first-time buyers by roughly 6%, according to estimates from Berlin and his colleagues. However, new homes are often relatively more expensive and are subject to a 5% goods and services tax, which would offset most of the policy’s benefit, he added.

Still, the policy stands to affect builders’ approach to new construction, Berlin said.

“Certain developers may see the biggest impact in a positive way,” he said. If they’re selling new homes geared toward first-time buyers, such as smaller or transit-oriented units, first-time buying “may be funneled into those types of projects.”

First-time buyers make up less than half of transactions, with their share falling in favor of investors and move-up buyers, while insured mortgages — the kind covered by the new policy — have fallen to about 15% of new activity, Bank of Montreal senior economist Robert Kavcic wrote in a note.

Buyer power could increase by about 8%, assuming a 5% mortgage rate with a fixed down payment, in the relevant “sliver” of the market, Kavcic added.

“This could shift some incremental activity towards new builds among first-time buyers — until prices adjust — but the overall market impact should be limited,” he said. “And that’s a good thing, as juicing demand is rarely the right prescription for a market already struggling with excess demand.”

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We hope you are finding our Blog informative and enjoyable to read while keeping you up to date with the ever changing real estate market. 

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