Why 2023 Is a Buyer’s Market for Investors in Toronto

Why 2023 Is a Buyer’s Market for Investors in Toronto

25,000 condo units are ready to hit the Toronto real estate market this year, according to Urbanation. However, a recent revision sees this number down nearly 6,600 units from the previously reported 32,000 units expected. This number still beats the previous high of 22,473 units completed in 2020. Yet, 25,406 units are still insufficient to keep up with the demand of homes needed annually.

This inflow of condos comes at a time when interest rates have reached what seems to be an all-time high – which is not the case – intimidating investors waiting on the sideline from entering the market. With high-interest rates causing high mortgage borrowing costs, the city is now seeing a drop in sales and home prices, leaving many to wonder what this could mean for investors. You may be surprised that now is the best investment time. The reason is: We are in a buyer’s market.

Right now is the time to buy a pre-construction, assignment or resale condo - depending on your investment goals. As sales are low, the price of homes is also low, meaning this is an investor’s opportunity to dive in and seize a good deal. After all, Warren Buffet, one of the most successful investors of our time, once said it is wise to be “Fearful when others are greedy, and greedy when others are fearful.

With Ford’s plan to build 150,000 homes annually in Ontario over the next decade, 25,400 units seem like a step in the right direction. However, the province is still making up for the low numbers seen during the pandemic period, when we reached lows of 13,885 in 2021 – the lowest since 2017. While an insufficient number of homes are being constructed to meet the target of 1.5 million, we can expect the market to pick up as the demand and increase in immigrants rises.

The Bank of Canada raised interest rates to 4.5% to help solve inflation and cool the market. But as we mentioned, the demand for homes will continue to grow over the next decade. At the same time, Canadians are trying to qualify for mortgages with five-year interest rates nearing 5%, but this should not deter investors from entering the market. As we know, investing in a pre-construction condo should be a long-term investment, not a short one. If you look at interest rates over the last five years, you would think they are at the highest they’ve ever been.

Bank of Canada Interest Rates

Source: Bank of Canada

 However, if you look at interest rates over the last 30 years, you will see that Canada's interest rates averaged 5.78% from 1990 until 2023. In fact, the highest interest rates were seen in the 80’s when they reached a historic 17.93%.

Bank of Canada Interest Rates

Source: Bank of Canada, Government of Canada

Investors should also know that the Bank of Canada aims to lower inflation and interest rates. With declining energy prices and improved global supply, inflation expects to fall in the middle of 2023 and reach its target of 2% in 2024. This should allow the prices of homes to decrease more, but this won’t last forever.

“It's an investors/buyer's market right now, and this window of opportunity will only last eight months to a year; the worst is done now. The interest rate increase has scared the market, and we can expect maybe one more increase in March – which is the time to invest,” advises Brigitte Obregon, Founder and Broker at GTA-Homes - Re/Max Ultimate Realty Inc.

New condos are not the only thing picking up. Rising mortgage rates and falling house prices have boosted assignment sales. Unfortunately, buyers struggling to get approved for a mortgage and investors seeing their assets decrease in value are resorting to selling their units. Fortunately, for prospective buyers, this is a great time to invest in a pre-construction, assignment and even resale condo, as the prices are relatively low. Plus, pre-construction condo developers are offering incredible incentives compared to a year ago (February 2022) when it was a seller’s market.

It’s important to understand that Ontario is in a housing deficit. Ontario is 1.2 million houses short of the G7 average and needs to build 1.5 million new homes over the next decade. This implies that ten years down the line, the demand for homes, especially in Toronto, is sure to skyrocket. Although 25,406 new condo units sound like a lot, we are nowhere near the number of homes needed to accommodate the record-breaking number of immigrants expected for Ontario. Now is the time to invest in real estate before the prices start rising again.

To learn more about investing in the GTA condo market and making the best return on your investment, get in touch with one of our platinum agents.