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Economic Viewpoint

How Low Can Prices Go in T.O.? Even A Severe Recession Likely Won’t Make Housing Affordable in Toronto

September 5, 2023
Jimmy Jean, Vice-President, Chief Economist and Strategist • Marc Desormeaux, Principal Economist

After years of being priced out of the market, many prospective Toronto homebuyers now sense an opening with a recession looming. But even in the direst of economic scenarios, we don’t see affordability returning to Canada’s largest city anytime soon.

Our worst‑case scenario is a 1990s‑style Ontario recession that would drive average Toronto home values $185k (16%) below current levels by the end of next year. By Q4 2025, prices would sit $340k (30%) lower than in July 2023.

Yet even if that improbable outcome were to materialize within the next three years, it would only bring Toronto’s home price‑to‑per capita disposable income ratio back to still‑stretched, late‑2015 levels.

Such a significant price decline could likely only come at a massive economic and social cost. Compared to our base‑case Ontario forecast, a 1990s‑style recession would result in a more than $35B reduction in employment income and almost half a million total job losses by Q4 2025.

A more bullish house price trajectory is also possible. Our most optimistic scenario for current homeowners sees persistently strong population growth and limited numbers of new listings lifting prices above the February 2022 peak by early 2025.

Our analysis underscores the extremely difficult starting position for both first‑time home buyers and policymakers seeking to improve housing affordability. Consequently, plans to boost the supply of affordable housing can’t fall short. It’s just not an option.

All levels of government and the private sector have to work together to address the herculean challenge of adequately increasing new homebuilding. Toronto’s—and indeed Canada’s—status as a welcoming and prosperous place to live depends on it.