Ontario’s real estate landscape is subject to several factors, including a surplus of inventory and the effects of interest rate hikes. Some of these factors will influence the loan-to-value ratio (LTV) that private lenders use. This metric divides the amount of the loan by the appraised value of the property.
How Do Current Trends Impact Real Estate Stakeholders?
As you can imagine, there are several different stakeholders in Ontario’s real estate market. There are real estate agents and investors, mortgage brokers, developers, and, of course, people buying and selling homes.
Real Estate Agents
Elevated borrowing costs are keeping buyers off the sidelines, which means lower sales volumes for real estate agents. Benchmark prices for the average home in Ontario have declined, which currently affects an agent’s commission.
Home Buyers
Home buyers are facing higher borrowing costs and economic uncertainty. Higher interest rates keep potential homebuyers on the sidelines, and many are waiting for the rates to come down.
Home Sellers
The Ontario Real Estate Association (CREA) reports a 16% drop in sales from May 2023 to May 2024. However, CREA is also reporting a 63.9% rise in active listings, which means there’s more competition to sell a home currently.
Lenders
According to the same set of statistics from CREA, home sales in May dropped 11.2% below the 5-year average.
Both sales and prices are down, and traditional lenders might need to enforce stricter credit score criteria and take other measures to tighten lending standards concerning income and employment. Many conventional lenders require two years of stable employment with the same company. They also look for T4 slips, pay stubs, and assessment notices from the Canada Revenue Agency. Those criteria could be affected.
Ontario Real Estate: Key Trends and Projections
The experts are weighing in on the trends and projections.
The Toronto Regional Real Estate Board (TRREB) reports that home buyers are still waiting for signs that mortgage rates will continue to decline. However, TRREB does report that they see many first-time homebuyers entering the market when and if the rates decrease.
The Provincial Housing Market Outlook from the Toronto Dominion Bank sees the resale market picking up speed and gaining traction in the second half of 2024. The report considers Ontario to have the most substantial price growth, although the projection is that 2025 numbers will be muted until there’s more rate relief.
Market Analytics and Data Insight
One of the significant insights that will make a difference in 2024 comes from the Canada Mortgage and Housing Corporation. They are predicting that the unemployment rate will rise to 6.5%, which will affect the economy.
The Canadian Real Estate Association has done some work with analytics and data and noted that inventories are rising sharply. However, they also report that residential sales activity numbered 17,871 units in May 2024, a significant drop of 16.3% from May 2023.
In Ontario, the home sales were 11.2% below the five-year average for the month of May.
The numbers show a few significant trends. First, reduced buyer demand is amplified by the market‘s uncertainty. There are some obvious corrections in the market due to ongoing affordability issues.
The Toronto Regional Real Estate Board (TRREB) has also noted a surplus of inventory in the area and fluctuating house prices from May to June.
Compared to the beginning of the year and the previous year
Some big differences need to be noted year over year from January 2023 to January 2024. According to the TD Provincial Housing Market Outlook, several noteworthy comparisons were made.
Sales
According to the provincial housing market outlook, more sales were made by January 2023, spurred on by the post-pandemic recovery and low interest rates. By the next year, economic uncertainty and elevated borrowing costs were behind a decline in sales.
Average Prices
Strong demand in low inventory in January of 2023 was replaced by higher borrowing costs that spelled moderate increases a year later.
Interest Rates
The report highlights the rise in interest rates between January 2023/2024 reduced affordability and buying power.
Overall Economic Conditions
In January 2023, low rates fostered an economic recovery. A year later, however, higher interest rates took hold, causing a much more cautious approach.
Future Projections and Forecasts
One of the significant insights that will make a difference in 2024 comes from the Canada Mortgage and Housing Corporation (CMHC). They are predicting that the unemployment rate will rise to 6.5%, which will affect the economy.
That could dampen the economy and reduce consumer spending, which will include real estate.
CMHC is also predicting that Ontario condominium projects could face future delays. Financing will become more difficult as pre-construction sales falter.
Some other news is good, and the projected MLS sales will be larger than a 10-year average because of significant population growth. However, these sales aren’t predicted to hit the high levels seen in 2020-2021
Impact on Private Mortgage Lending
Most importantly, the 3.7% decline in the average home price in Ontario might affect loan-to-value ratios. If the appraised value of any property drops, the LTV ratio increases. Private lenders prioritize a certain amount of equity in the property based on the appraised value. This separates them from more traditional loans that have strict requirements on credit scores and income.
Like the possible increase in the LTV ratio, the current market conditions for real estate in Toronto could mean private lenders look for a larger percentage of equity. Equity refers to the part of a property’s value that the owner fully owns, without any mortgage.
Looking for Private Mortgages in Ontario?
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