Toronto Rental Market is on the Rocks: Looming Risks Ahead

Overview of important developments in the Toronto Metro housing market and macro reported in August 2024

Highlights

• A decline in new listing activity provided some relief to the Toronto Metro’s resale market.

• The rental market weakened during the historically strongest month, with rents nearing 2022 levels. Future risks remain.

• While pre-construction sales remain low, housing starts saw a surge in July.

• Over 50,000 housing units were completed in the last 12 months in Toronto Metro for the first time in history.

• Rising credit card debt is becoming an alarming trend that requires attention.

• Volatility and late-cycle concerns are drawing attention to financial markets.

Real Estate Market

The Toronto Metro real estate market showed some signs of stabilization in August, marked by a decline in new listing activity compared to the 10-year average. While active inventory increased on the same basis, the rate of growth slowed substantially.

As a result, the market balance indicators diverged compared to the 10-year average, with the condo sector remaining weaker than the overall market.

All price metrics continued to decline in August, partially driven by a further reduction in the share of sold luxury properties.

Although some recent headlines have focused on large monthly price fluctuations, underlying prices are exceptionally sticky. The seasonally adjusted benchmark price has remained largely unchanged throughout 2024 despite weakening market balance.

Given its low volatility, the seasonally adjusted benchmark price might seem like the best price metric. However, it is lagging and not entirely reliable, so other metrics should be monitored as well for a complete understanding of the market.

The Toronto Metro rental market weakened in August, which is unusual, as this is traditionally the strongest month of the year. This may indicate that fall admissions for international students are indeed declining.

The rental market balance is the weakest it has been since at least 2012, excluding the pandemic period. Rent prices dropped not only 5% below last year’s level but are also approaching 2022 levels, with condos even dipping below that threshold. The current level of rents is considered fairly valued in relation to incomes.