CMHC Toronto Property Market Outlook – Cooler But Not a Meltdown

Toronto's property market, a perennial topic of conversation and anxiety, faces a period continued of recalibration.

After years of frenzied growth, driven by low interest rates and demographic pressures, the market is showing signs of cooling. While a dramatic crash is unlikely, a period of moderation, marked by fluctuating prices and shifting demand, is on the horizon.

Demand for Existing Homes: Some Improvement

The most immediate catalyst for change is the anticipated rebound in resale activity. Following two years of sluggish sales, the recent easing of mortgage rates is expected to lure buyers back into the market. This renewed interest will likely translate into a modest increase in buyer demand and prices.

However, it's crucial to note that this recovery is projected to be modest, and activity is very unlikely to return to the frenzied peaks witnessed in 2021.

While the impact of recent rate cuts was already impacting late 2024 purchase activity, which exceeded those of the same period in 2023, the overall buyer activist or 2025 is expected to only return to average. This suggests a market cautiously regaining its footing rather than experiencing a dramatic resurgence.

This dynamic is further amplified by the confluence of lower interest rates, pent-up demand from prospective buyers who have been waiting on the sidelines, and the relatively healthy wage growth observed in recent years.

Pre-sale Condominium Apartments: Facing Headwinds

The most immediate factor is the lagged impact of elevated financing rates. Condominium apartment pre-sales, a significant component of Toronto's housing supply, are expected to decline in 2025.

2024 had extremely weak demand. Between January 2024 and January 2025, the benchmark condo price dropped from $1,052,474 to $1,015,231, and 5-year fixed mortgage rates dropped over 1%. Neither of these manages to stoke a comeback in pre-sales.

Unabsorbed condo inventory now stands at 17,000. That’s more than double the inventory available in 2022.

Even with fewer new project launches, construction is close to peak levels. As these in-flight projects are completed in 2025 and 2026, the housing stock will increase. Whoever occupies these units will vacate a home elsewhere, and the current owners will be selling or renting into a weaker market than they likely expected.

Builders who have acquired land for development but are waiting for conditions to improve before trying to pre-sell the homes (locking in the price they’ll be paid). Although the underlying demand for housing persists, financing new construction at higher rates remains a significant hurdle. Labour and materials costs have risen with inflation, and the prices at which they can sell housing units are falling. Developers, who face mounting pressures squeezing their profit margins, are understandably cautious and hesitant to break ground on new projects. Current conditions are an opportunity for savvy buyers to get developers to offer concessions like free parking spots and storage lockers.

Migration and Housing Demand: A Shifting Landscape

Despite the positive signs in the resale market, the broader picture is complicated by evolving migration patterns.

RBC: The federal government’s plans to reduce new arrivals are expected to essentially wipe out all previously expected population growth in years ahead. While the final impact on population is yet to be known, the direction will be lower, turning demographics from a tailwind to a headwind. link

Changes in international migration policies, while having a less direct impact on the resale market compared to the rental sector, will nonetheless be felt in Toronto, a favoured destination for many new arrivals. Slower population growth, driven by adjustments to immigration targets and ongoing interprovincial migration, will exert a dampening effect on overall housing demand. This demographic shift presents a significant challenge to the market's long-term growth prospects.

Rental Market Dynamics: Rising Availability

The rental market, after a period of rapid growth, is also experiencing a shift. Increased supply, coupled with a decline in temporary residents, is leading to rising vacancy rates and falling rents. Changes to immigration targets, particularly the reduction in international student arrivals, are impacting demand, especially in areas surrounding post-secondary institutions.

In the CMHC’s December 2024 Rental Market Survey, Metro Toreonto’s rental vacancy rate climbed from 1.4% to 2.5%, while 3 to 5% is considered a ‘normal’ vacancy rate. So, the rental supply is tight, and still rent rates have started to slide regardless.

According to CMHC, “investors are unlikely to return to the market as they won’t see rates low enough to make up for significant negative cash flow positions. Fewer investors and persistent affordability challenges will hold MLS® sales below their 10-year average.”

Price Growth: Fork in the Road

CMHC: “Ground-oriented homes are expected to see higher prices due to greater pent-up demand while condominium prices will likely face continued downward pressure.”

Demand fundamentals, such as income and household formation, are expected to provide some upward pressure. However, affordability constraints and a cautious buyer pool will limit significant gains.

Family-sized homes, in short supply, are likely to see stronger price appreciation, while condominium prices may face continued downward pressure due to elevated inventories.

While, in principle, the CMHC’s logic for fetched house price rises makes sense, demand would have to increase significantly to turn the tide. However, buyer demand for detached houses was lower in January than in 2023.

While active listings of detached houses have almost doubled, and there is an unabsorbed inventory of roughly 4,500 pre-sale and new construction houses (up 46% from 2023). The CMHC’s forecast, while possible, looks like the least likely outcome.

Looking Ahead: A Period of Stability

Looking ahead, the CMHC predicts the Toronto property market is poised for a period of relative stability.

While a return to the boom years is unlikely, neither is a sharp correction. The market's performance will depend on a delicate balance of factors: mortgage rates, government policies, Canada-U.S. trade relations, and evolving population trends.