Could Ontario’s Housing Market Experience A 90s-Style Downturn?
The comments below are an edited and abridged synopsis of an article by Daniel Johnson, BNN Bloomberg
Conditions in Ontario’s housing market have deteriorated to the worst level in over a decade, according to a report from TD Economics.
TD economist Rishi Sondhi found that in October, Ontario’s sales-to-new-listings ratio hit around 37%. Recent data also said that Ontario’s sales-to-new-listings ratio hit 37% in October.
Sondhi said the ratio could fall below levels experienced during the housing downturn in the 80s and 90s, when home prices declined by 30%.
However, the report highlighted reasons why this may not occur, citing the probability that Ontario will avoid a steep recession and the possibility of a more favourable trajectory for interest rates.
The Bank of Canada is holding its key policy rate at 5%. TD said the central bank is likely done with its hiking cycle and this should help the economy avoid a deeper downturn.
The report also said that Ontario is experiencing a housing shortage coupled with robust population growth.
Despite the lower probability of a 90s style correction, the report said home prices in Ontario will likely fall further in the coming months.
“Indeed, prices could fall around 10% from their third quarter level through the first half of next year,” the note said.
“Elevated borrowing costs are pressuring demand and straining homeowners who are renewing their mortgages, likely pushing up supply to some degree.”
Sondhi said that homeowners in Ontario will continue to feel the pressure until 2025-26, when people who took out mortgages at lower interest rates will experience a payment shock.