By now, most of us know there are far too many possible plot twists that may knock the Toronto real estate market off course in a given year. So, any real estate prediction should be taken with this in mind. Still, I’m quite comfortable exploring what may be coming our way based on my in-the-trenches real estate expertise buying/selling real estate for clients and a few educated guesses. I will admit that 2023 will be a tough year to predict, but not the toughest. After dramatic years like 2020, 2021, and 2022, I think things may be rather unremarkable this year. And perhaps that will be welcomed by many people. No sudden jolts or twists. Still, it can be tough to see where the Toronto real estate may drift. In other words, I don’t think there will be any wild fluctuations this year, though it is hard to see what direction we are heading. The crystal ball may be murky, but let’s give it a good polish and see what it reveals!

Here is what I predict will be coming in 2023:

SLOWING RATE HIKES

I would not say we are completely done with rate hikes. It’s possible that we can even go higher if inflation becomes too stubborn and remains higher than the Feds would like. That said, I think we won’t see the kind of interest rate hikes we’ve seen last year. I’d say maybe two small hikes at most. I don’t think we’ll see one for January, but there may be one or two more. Since interest rates are still very much the driving force behind how the Toronto real estate market will be functioning, interest rates will be the driving force behind prices again for a good portion of 2023.

I suspect the winter and spring market will be very much like the fall market. It will be sluggish – prices will likely flatline, and may even come down a little more, or even up a little month to month. Overall, though, I don’t think we’ll see the changes we’ve seen last year between March and July of 2022. Flat line price growth, but no crash for the first half of the year. The second half of the year, we may begin to see interest rates take a back seat. And when that happens, the market may be less beholden to what interest rate hikes are currently doing – namely lowering prices.

AFFORDABILITY PROBLEMS HAVE NOT GONE AWAY

Though prices have come down because of interest rates in 2022 and we can certainly say that interest rates are the main driver of Toronto real estate in 2022, affordability issues are waiting in the wings to be obsessed over again when interest rate fever is finished. Once the fear of rising interest rates have abated, likely some point in the second half of this year, there is still a lack of supply for this region that is not growing quickly enough for new Torontonians moving here. Prices are down largely because of interest rates, but once that fear is diminished, the issue of supply and affordability will return as our main fear and main driver of how we relate to real estate. The difference: Low supply will create higher prices and a focus on lack of inventory. In 2022, we have seen some some legislation to push supply. Sadly, it won’t have much have an impact. Here are some:

1. 1. FASTER, PUSSYCAT: KILL, KILL! Bill 23 wants more homes built faster. It was brought in by the Ontario government. To be honest, it’s not all bad. They do have some good ideas in here to build more properties quicker, and I have to commend them for doing something. Of course, building on the green belt is a bad idea. There’s a lot of land that could be built upon that is not protected.
   2. FOREIGN BUYER BAN WILL HAVE LITTLE TO NO IMPACT: The Foreign Buyers ban will also begin this year on residential properties in Canada. There are a few exceptions like cottages or recreational properties, as an example. I’m not sure that’s going to have a big impact on affordability. It feels more like a gesture than anything. Foreign buyers made up around 4% of all sales in Toronto last year. Not exactly a huge number. The government also targeted investors with a new anti-flipping tax for owners who buy and sell within 12 months. I don’t think this will have much of an impact on affordability either. The investors will just hold their properties longer. Plus, we may see a lot of trouble with this legislation if prices go down and home owners who are not investors need to sell their homes before the 12 month period. Again, I think these are all gestures to appear that housing affordability has been addressed by the government, but the impact will be minimal.
   3. SO LONG SINGLE FAMILY ZONING: The most effective legislation to be considered in 2022 that may actually increase supply comes from the City of Toronto. The problem is it could take years, even a decade or more, to really make an impact. Because so much housing in Toronto is on exclusionary, single family zones, we are not able to gently densify in most of Toronto. Toronto Mayor John Tory announced a sweeping housing plan to increase Toronto density in these low density areas. We’re not talking about adding a 40 storey tower of condos beside a single family house, but there will be more flexibility allowing new double and triple occupancy and legalizing apartment buildings. In ten years, this could change how our city looks, and redefine neighbourhoods. I’m sure there will be some blowback from some neighbourhoods, but denser neighbourhoods often brings in more robust businesses and safer streets with more traffic.

TRANSACTIONS WILL GO UP

This may not be the case right away, but those sitting on the sidelines will begin go grow tired of waiting to make their real estate decisions, and just dive in. Right now there has been a growing number of both buyer and sellers that would have liked to have bought and sold in 2022. I believe the second half of 2023 will look more predictable. And because of that, we will begin to see transactions creep up. Many people are waiting for a signal that it’s safe to buy real estate again.

And really, buyers should be very open to buying right now. You need to strike when there is uncertainty. I know there is risk that prices may go down further, but if you plan to stay in your property, this is a great buyer’s market that won’t be around forever. The best in over a decade in terms of ease of buying and ability to negotiate.

INTEREST RATE SMACK DOWN FOR PRE-CONSTRUCTION

So far the stand off between buyers and sellers have been pretty even. Both are largely waiting to see what the other will do. And I think this will continue to be the case in 2023. However, we may see a few buyers run into some trouble, particularly if they purchased pre-construction condos that come to completion this year. As pre-construction reaches completion, some lenders may not appraise the condo at the same price as the buyer purchased it. The buyer would then have a shortfall. In addition, with higher rates, the buyer may no longer qualify for the same mortgage. There are also those recent buyers who may have purchased a property at their top limit with a variable rate who cannot afford any increases. To be honest, I think these will be few and far between, but they may have an impact this year. Some opportunity for buyers perhaps, but these unlucky buyers won’t be a contributing factor to prices really coming down. I feel you may be one of these buyers, I would suggest you do your best to hold on and keep your property. If you hold until 2026, I suspect you will very likely see appreciation with your property, even if you bought it at the worst time in 2022.

CITIES WILL DO BETTER THAN THE SUBURBS, PART 2

This prediction is really just a carry over from the predictions of 2022, but I feel it’s important to say again. I think we’ll continue to see a return to the city after the exodus that happened during Covid. Cities are not done because of remote work as some have predicted. Many people have come back to Toronto because the life they fantasized about out of the city did not materialize the way they wanted or was not as inexpensive as was expected. The gap will widen this year between cost of living in the city and the burbs.

THE SECOND HALF OF THE YEAR

The second half of this year will be the much tougher spot to predict. I do think we we will start to emerge out of the doldrums of this current real estate malaise. Prices may even begin to come up, though it will be like climbing out of quicksand at first. Rates may even nudge down by the end of 2023, but that may also be a story for 2024. I do acknowledge that this current market may grow worse and that we may still see prices come down for the full year, but with talking to my clients, there really seems to be an interest to get back in there after holding off for a year.

2023 is not really the light at the end of the tunnel. It’s more the tunnel we need to travel to arrive at the light. We’ll still be chugging along like it’s the fall of 2022 for the start of 2023, but it may grow brighter by the end of the year. Of course, this all depends on who’s perspective we are considering. For some buyers from early 2022 we may need to wait for brighter days to see a better return on your investment. For buyers who don’t own any property yet, I believe you will be basking in the light for 2023. Just make sure you make your move before the clouds return for you when sellers are back in the driver seat where they usually sit in the Toronto real estate market.