The Two Factors That Will Decide Toronto’s Housing Market in 2015

Every major financial institute and real estate brokerage in the country has something to say about what to expect in 2015 in terms of housing prices and sales figure. However, not everyone is in agreement as to what the near future will hold for Canadians looking to buy a home. Opinions differ as to whether the market is set to crash, or whether we’ll experience a “soft landing.”

TD Economics released a report last week that focused primarily on the “Big 3” markets: Toronto, Vancouver, and Calgary. Toronto and Vancouver alone account for 40% of the housing market activity nationally. Robert Hogue, a senior economist with RBC, suggests that a very clear line needs to be drawn between the Big 3, and all other Canadian cities, when discussing potential market growth or decline. The strong activity the Big 3 markets saw in 2014 is bound to see a decline in response to what Hogue believes will be incremental increases in mortgage rates beginning in the summer. All other markets are relatively “balanced” by comparison, and will experience small to moderate corrections in home prices throughout the year.

As reported on by Susan Pigg of The Toronto Star, the TD report suggests that house prices in Toronto and Vancouver specifically, are overvalued by 10-15%. National real estate brokerage ReMax, in their annual Housing Market Outlook report, doesn’t see this trend changing anytime soon, predicting that housing prices in Toronto will continue to rise, somewhere in the neighbourhood of 4%, and that by the end of 2015, GTA home prices could average $589,100, up from $566,400 in 2014.

According to these early forecasts, two factors will largely determine whether housing prices and sales will rise or fall: interest rates, and oil prices. Diana Petramala, an economist for TD, and Gurinder Sandhu, executive vice president of ReMax, each discuss the connection between national oil prices and interest rates in interviews with Susan Pigg, suggesting that, an increase in interest rates (which it historic lows last year) is largely expected by the Bank of Canada sometime this fall, but that this move could be delayed on account of slumping oil prices. Fortune Magazine provides a great summary of the correlation between oil and housing prices, suggesting that, big oil price drops have historically been associated with job losses and falling home prices in energy-producing regions. Cities that rely on crude oil processing for the bulk of their employment options will likely see home prices fall almost immediately.

Tamsin McMahon of The Globe and Mail argues that a decline in oil prices will benefit some major Canadian cities, and become a detriment to others. Toronto, unfortunately, is expected to see continued price growth resulting from “pent-up demand” from last year (all those who lost out in the ‘bidding wars’ that took place throughout 2014). In addition, the realization on the part of the potential homebuyer that interest rates will inevitably increase, could incite a buying frenzy by those looking to lock in low rates while they still can.