Annual Report: Key Highlights From the 2023 Ontario Housing Market

Ontario's real estate market underwent a significant recalibration in 2023. Years of meteoric growth yielded a measured correction, with average home prices experiencing a 3% decline. This shift was primarily driven by rising interest rates, which subdued buyer activity and resulted in an 8% decrease in sales volume. 

Below, we will be discussing the significant events that unfolded in the 2023 real estate market. These insights will offer you invaluable guidance for navigating the complexities of buying, selling, or investing in real estate within the province in 2024.

Ontario Sales Activity Throughout 2023

The Bank of Canada raised interest rates by 0.25% in December 2022 and mirrored this with another 0.25% hike in January 2023. This slowed down the market activity in the Ontario housing market and total properties sold fell by 60% in January.

In May 2023, the Ontario real estate market witnessed a remarkable surge in total properties sold, registering an impressive 91.6% increase compared to January. The spring and early summer months were marked by robust activity and heightened buyer interest. However, this positive momentum faced a significant challenge as the Bank of Canada implemented consecutive interest rate hikes in June and July.

The impact of these decisions became evident as the total units sold began a steady decline, signalling a departure from the earlier vibrancy in the market. The decline, which had its roots in May 2023, persisted throughout the remainder of the year, painting a clear picture of a market grappling with the consequences of increased borrowing costs and shifting economic dynamics. This trend underscored a notable reversal in the bustling activity that characterized the earlier months of 2023. 

Ontario Supply Activity Throughout 2023

In 2023, the Ontario real estate market witnessed a notable shift in the landscape of new property listings. The trajectory of total new listings began its descent in June, reaching a peak shortly after August, and continued on a consistent downward trend thereafter.

This decline paralleled the trend observed in total units sold, hinting at a potential correlation between the two factors. Despite a modest uptick in new listings recorded in September, the overall narrative for the year was one of diminishing property listings in the market.

2023 Ontario Average Price Trend

In Ontario's real estate market of 2023, the average selling price trend reflected a series of nuanced shifts. The year began with a notable downturn, as January saw the average home price stand at $832K, marking a 14.6% year-over-year decrease. The housing market, however, experienced a resurgence with the onset of spring and summer, coinciding with the Bank of Canada maintaining interest rates at 4.25%.

In May 2023, the average home price reached its zenith at $937.70K, signalling heightened activity in the market. Nevertheless, the positive momentum faced headwinds as the Bank of Canada implemented consecutive interest rate hikes in June and July.

This, in turn, contributed to a parallel downward trend in the average home selling price, aligning with the patterns observed in new listings and total units sold. While a slight uptick occurred in September, the overall trajectory for the year pointed towards a gradual decline, especially with the approaching winter market.

In a nutshell, while home prices in 2023 did not reach the peaks seen in 2022, concerns over affordability loomed large for homebuyers due to historically elevated interest rates. The persistently sluggish job market, influenced by both economic deceleration and the Ukraine conflict, further deterred prospective homeowners. Notably, the Bank of Canada's assertive interest rate hikes successfully contributed to a significant decline in the inflation rate, dropping from 8.1% in June 2022 to 3.1% by November 2023.

What Factors Contributed to the State of the Ontario Housing Market in 2023?

01The COVID-19 Factor

In the wake of the COVID-19 pandemic, the Canadian housing market experienced notable shifts. Initially interrupted by the global crisis in the early 2020s, the real estate sector later rebounded strongly, fueled by historic low-interest rates set by the Bank of Canada.

These rates, held at 0.25% until March 2022, contributed to affordable mortgages, fostering increased demand and driving up home prices. Concurrently, pandemic-induced remote work policies led to a preference shift from central apartments to suburban homes, boosting prices for detached and semi-detached properties.

Furthermore, the pandemic exacerbated pre-existing labour shortages, prompting Canada to increase immigration targets. In 2022, the country reached a record of 431,000 new permanent residents.

02Sales Activity Throughout 2021-22

Property sales in Ontario saw a notable rise in 2021, reaching 32,000 units in March from 14,000 in January. However, affordability concerns and escalating home prices led to a decline in sales throughout the year. In March 2022, amidst the second Covid wave, sales surged to 49,000, but a housing market correction began post-March 2022 due to interest rate cuts. By December 2023, sales dropped to 7,000 units, reflecting a substantial decrease from the peak in March 2022.

03Ontario Supply Activity Throughout 2021-22

In early 2021, new property listings in Ontario rose by 88.5% from January to March. May 2022 saw a significant spike, reaching 90,000 compared to 10,000 in December 2021. Although annual sales declined, May 2023 experienced a notable price surge, attributed to stable interest rates and typical market activity.

04Average Price Trend Throughout 2021-22

In 2021, Ontario's property prices steadily rose, hitting $893,000 in July, a 6.5% increase from February. December 2021 saw the average price reaching $953,870, and January 2022 started at $965,000. April 2022 hit $1.2 million, but a correction followed due to Bank of Canada rate hikes, dropping prices to $873,000 by August 2022. From then until December 2023, average home prices did not return to the pandemic peak of $1.2 million.

Major Economic Factors That Impacted the 2023 Ontario Housing Market

A Glimpse into the 2023 Regions Housing Market

01GTA

Throughout 2023, GTA home prices never dropped below $1.03M from January to December. Maximum home sales in the GTA occurred during the second quarter of 2023, hitting a peak in May with 8956 transactions. This took the average home selling price to $1.2M, the highest in 2023. 

The scenario flipped when the BoC increased policy rates back-to-back in June and July, setting the new rate at 5%. The shift in interest rates caused a downturn in buyer interest, resulting in a drop in transactions. Even as transactions dipped to the 3000s, December's average selling price stayed at $1.08M. In short, GTA stood out as a top pick for homebuyers in 2023 and this trend is expected to continue in 2024.

02Peel

The Peel region saw a bustling housing market at the beginning of 2023 but it took a noticeable dip as the year closed out. After the Bank of Canada kept the interest rate stable at 4.50%, several homebuyers sealed the deal on their dream homes taking the total number of properties sold up by 95% in May 2023 as compared to January. However, after the Bank of Canada raised interest rates by 25 basis points consecutively in June and July, the total number of properties sold began decreasing, hitting 505 in December.

The average selling price of properties in the Peel region also followed a similar trend in 203. The price of properties in Kitchener peaked at $1.14M in May and then gradually declined to $992K in December 2023.

03York

The average home selling price in the York region fluctuated throughout 2023 but it generally remained within the price range of $1.25M to $1.38M. The highest average selling price in the York region was $1.37M in April and June 2023 while the lowest was $1.25M in December.

The total number of properties sold in York peaked in May at 1723 and then declined steadily to 536 in December. This was because of the Bank of Canada’s interest rate hike move to 5% in June and July and the winter market slowdown activity. The total number of new listings also followed a similar trend to home sales, peaking in June at 2961 and then declining to 625 in December.

04Halton

The average home selling price in Halton started at $1.1M in January and peaked at $1.28M in April, a 14% increase. It then declined to $1.20M in August before ending the year at $1.25M, a 4% increase from August. The number of properties sold followed a similar trend to the average selling price with a peak in April and May and a fall throughout the rest of the year. Total units sold was 395 in January and peaked at 1069 in May, a 92% increase from January. It then declined to 343 in December, a 102% decrease from the peak.

The number of new listings stood at 860 in January and increased steadily until reaching a peak of 1858 in September. It then climbed down to 360 in December.

05Durham

Durham’s housing market began the year with an average selling price of $892K in January. June saw the average selling price reach its peak at $1M, marking a 12% rise from the starting price in January. The average selling price then declined steadily throughout the rest of the year, ending at $860K in December.

Apart from the interest rate impact, the total units sold followed a seasonal pattern with the highest number of sales in the spring and summer months and the lowest numbers in the winter months. The highest number of properties sold in a single month was 1050 in May and the lowest number of properties sold in a single month was 400 in December. 

The Path Ahead for the Canadian Real Estate Market in 2024: Key Drivers and Outlook

Key Drivers

Interest Rates: Following a period of aggressive rate hikes starting from March 2022, the Bank of Canada is expected to lower rates in 2024 due to economic slowdown and moderating inflation. The lower borrowing costs will make mortgages more affordable, potentially fueling demand from homebuyers who were previously priced out. 

Immigration: Canada's Immigration Levels Plan aims to welcome 485,000 new permanent residents (PRs) in 2024. This increased demand could put upward pressure on housing prices, especially in already-hot markets, potentially exceeding the projected 4.7% national average increase by CREA. 

Job Market: As more people join the labour force, the job market will remain sluggish with unemployment possibly rising to a 6.1% average in 2024 from a 5.4% average this year. The sluggish job market may dampen housing demand, particularly in pricey cities and regions where affordability constraints are already prominent. 

Income and Affordability: As we head into 2024, the outlook for wages and housing affordability still looks challenging. It will be difficult to see a jump in household income to the levels currently needed in most major cities to buy a home. 

Overall Outlook

The outlook for the Ontario housing market in 2024 is mostly optimistic. Experts are anticipating a gradual recovery in home sales and prices as conditions improve. The prices of properties in major cities such as Mississauga, Richmond Hill, North York, Toronto, and others are expected to see a growth of over 4%. On the other hand, comparatively affordable cities such as Kitchener, Cambridge, Brantford, and Barrie may see a significant increase of 1.5% to 2.8% in property prices in 2024. 

However, some potential pitfalls could derail this scenario such as supply shortages, inflation hikes, job market slowdown, and recession.

Market Projection Ontario 

After nearly two years of interest rate hikes and fluctuations in the real estate market, some forecasters expect the Canadian housing market correction to come to an end in 2024. The Central Bank’s policy rate will be a major barometer for the Canadian housing market. 

If the BoC decides to pause the interest rates in its next announcement on 24 January 2024, the price of homes is expected to climb from 865K to 875K, showing a 1.15% increase. 

Economists are projecting that interest rates will gradually begin to decrease sometime during Q2 of 2024. This potential interest rate decrease move along with the spring and summer market activity is expected to bring a turnaround in the Canadian housing market. 

CREA forecasts that national home sales will rise by 13.9 per cent to 561,090 units in 2024, while the national average home price will increase by 4.7 per cent to $702,200.  In a nutshell, the market may shift towards a more balanced state in 2024, with slower price growth, increased supply, and less intense competition. 

To make the most of the 2024 housing market, make sure to team up with an expert Realtor. They will guide you in finding the ideal time and location to purchase or invest in a property, considering your budget, preferences, and the latest market trends.