While the Greater Toronto Area (GTA) housing market may have weathered the initial COVID-19 storm, it's far from over, as the region must now overcome its next pandemic-induced obstacle: housing affordability.

Many have cautioned that real estate in the region is on the cusp of a bubble burst, though, RE/MAX argues that the GTA is now in the midst of a housing affordability crisis.

“Housing bubble? I prefer the term ‘affordability crisis,'” said RE/MAX Chief Strategy Officer and Executive Vice President Christopher Alexander.

“The demand level is at an all-time high and inventory is very low. I don’t see how we’re going to be able to keep up with the demand with population levels expected to rise to new heights.”

Alexander attributed the crisis to a "perfect storm" of factors, including low inventory, high demand, and recently increased purchasing power thanks to rock-bottom interest rates and Canadians’ higher rate of household savings over the last year.

READ: Is This the Year the GTA Real Estate Bubble Bursts?

Unsurprisingly, there are now early signs of overheating in Canada’s housing market, with Bank of Canada Governor Tiff Macklem (finally) acknowledging “some signs of excess exuberance.”

Though, Macklem has downplayed the need for action.

Despite admitting to the sure signs of overheating, Macklem says there are so far no plans to raise interest rates until the economy and employment are back on track following the declines caused by COVID-19.

“Right now the economy is weak, we’re just coming out of the second wave. I think we need the support, we need the growth we can get,” Macklem said.

And, amid the pandemic, the GTA's real estate market for single-family homes continues to grow hotter, with home prices and transactions in the region soaring to record-breaking heights.

Just last month, the average price of a home in the region — including all types of houses and condos — rose 14.9% year-over-year to $1,045,488, surpassing the million-dollar mark for the first time in history, according to the Toronto Regional Real Estate Board (TRREB).

There were also 10,970 sales recorded in February — a 52.5% increase compared to 7,193 sales reported during the same month in 2020, while new listings were up 42.6% compared to February 2020 -- but sales are still outpacing any new supply coming on the market.

While Toronto is always considered one of the hottest real estate markets in the country, the robust growth in the region can be attributed to activity in the surrounding suburbs.

Markets outside of Toronto really heated up in the wake of the pandemic, as homebuyers’ newfound flexibility due to remote work arrangements allowed them to look outside of the city core for homes offering more indoor and outdoor space at a more affordable price.

Subsequently, real estate markets such as Halton, Peel, and Durham experienced marked increases in sales and prices between 2020 and 2021, with the trend continuing.

As Alexander pointed out, the problem is that new listings are falling short of demand, which is driving up prices, hence the affordability crisis.

And, with more people set to be vaccinated and immigration expected to pick up over the next three years, "there’s no relief in sight" for the region's housing market.

Though, Alexander said this could improve if a national housing strategy is implemented to "boost supply and ease the housing crunch.”

READ: Canada’s Housing Market is Overheating, But Don’t Expect That to Change

Alexander also said that while the Toronto housing market is experiencing a shortage of single-family detached listing inventory, he expects the balance will be restored -- to a degree.

Alexander suggested that once homeowners feel more confident with listing their home for sale and feel safer in the current pandemic environment, it will ultimately lead to an uptick in the amount of inventory available.

Of course, widespread vaccinations and eventual immunity will also help.

Paul Taylor, chief executive of Mortgage Professionals Canada suggested a similar solution to STOREYS: encourage a new supply of entry-level priced housing.

“The recent price increases we’ve seen are driven partially by low-interest rates and partially by lack of supply and lack of listings,” explained Taylor, adding that many people are competing for the same homes given the scarcity of availability. 

Given the continued rollout of the vaccine, Taylor also anticipates that more people will list their homes for sale, especially as there is a record-setting lack of homes on the market right now. This could be due to many people feeling uncomfortable with the idea of strangers visiting their home for showings during COVID.

Though, once more people begin listing their homes, Taylor says it will help moderate price growth.

Affordable Housing