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Even a severe recession won’t make housing affordable in T.O., economists say

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Toronto’s real estate landscape has been nothing short of tumultuous, as Desjardins economists shed light on the rollercoaster ride of housing prices in Canada’s largest city and where we could go from here. 

With soaring home prices during the pandemic and a subsequent drop, a recent report from the financial institution underscores the exceptional nature of Toronto’s housing market within the broader context of the country’s nearly uninterrupted two-decade surge in home prices.



The report looks at three scenarios of where prices and affordability could go in Toronto with the caveat that “even in the direst of economic scenarios,” economists don’t see affordability returning any time soon.



Scenario 1: A throwback to the 1990s


In a stark scenario reminiscent of the 1990s recession, the report explores a potential downturn in Toronto’s housing market, painting a picture of a significant drop in home prices. While possible, it’s improbable and there would be implications for both for buyers and sellers.

If this severe recession scenario were to occur, Toronto home prices could fall by a staggering $185,000 (16 per cent) from current levels by the end of the next year. By Q4 2025, prices could be as much as $340,000 (30 per cent) below the levels seen in July 2023. Despite this plunge and even under such extreme circumstances, the home price-to-per capita disposable income ratio would only return to levels last seen in late 2015.

“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.”


Scenario 2: A moderate slump


The second scenario envisions a more moderate economic recession and its effects on Toronto’s housing market. It examines how this scenario could lead to a dip in home prices while assessing its impact on housing supply and demand.

Under this scenario, Toronto house prices would bottom out by the end of the next year, roughly 5.0 per cent below the levels seen in July 2023. Despite this decline, the report anticipates a slight improvement in affordability compared to current levels, though it would still only bring the price-to-disposable income ratio per person over age 15 back to early 2021 levels.


Scenario 3: Population growth vs. new listings


The report’s third scenario offers an optimistic outlook for current homeowners, focusing on sustained, record population growth and limited new listings. 

In this scenario, Toronto home prices could increase by about 6% higher than in the base case. This would push prices past the February 2022 peak by early 2025. While this might be seen as positive news for property owners, it would be less favourable for prospective buyers, as “the sales price‑to‑disposable income ratio per working-aged person would exceed its pandemic‑era peak by mid‑decade.”

Complex challenges


Desjardins’ economists underscore the exceptionally challenging starting position for both prospective first-time home buyers and policymakers seeking to improve housing affordability: “Striking as these results may be, we’ve always known that restoring housing affordability was a long‑run process. Our analysis reinforces that view, as well as the need to successfully implement ambitious plans to boost the housing supply.”


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