Severe, ‘90s-Style Recession Won’t Restore Housing Affordability In Toronto

Toronto may be in store for a sharp, ‘90s-style recession according to a new report from Desjardins.

Worst-case scenario, says the report, home values could slip 16% below current levels by the end of 2024. By the fourth quarter of 2025, values could end up 30% under July 2023’s levels.

Despite the likelihood of that scenario, Desjardins Chief Economist and Strategist Jimmy Jean and Principal Economist Marc Desormeaux warn that it won’t be the saving grace homeowner hopefuls are crossing their fingers for.

“Such a plunge would only bring the home-price‑to‑per-capita-disposable-income ratio back to where it was in late 2015,” the report authored by Jean and Desormeaux reads. “That was considered to be a record level of unaffordability at that time.”

They also forecast other social and economic fallouts, including a $35B reduction in employment income and close to half a million total job losses by Q4 2025.

Tuesday’s report includes two more moderate recession scenarios involving more “bullish” house price trajectories. The most “optimistic” of those assumes that annual working‑age population growth remains at “recent record rates” of around 3% through 2026, which would serve to prop up housing demand. With new home listing levels expected to remain low, this scenario would see home prices surpass the February 2022 peak by early 2025.

“Although this would be great news for property owners, it is the least positive of our scenarios for prospective buyers,” notes the report. “The sales-price‑to‑disposable-income ratio per working-aged person would exceed its pandemic‑era peak by mid‑decade.”

With housing affordability remaining a concern through all three recession scenarios, Jean and Desormeaux point to the increasingly challenging conditions facing first‑time home buyers, as well as the risks posed to Toronto’s social and economic health.

“People are leaving Ontario, especially the GTA, in search of cheaper accommodations. Thus, despite near‑record population growth, Ontario risks eventually losing the entrepreneurship and economic dynamism that young people bring.”