UPDATE: Toronto Real Estate Market Now Hotter Than 2016 Housing Boom that Caused Government Intervention

"If you think Toronto is unaffordable now, you wait," is how Benjamin Tal, deputy chief economist at CIBC, recently described the current state of Toronto's housing market.

Those might not be words you want to hear when thinking about the city's housing -- which is already amongst some of the most expensive in the country. The average cost for a home in Toronto is now sitting at $1,083,322 (slightly below the current overall average selling price in the GTA which is now $1,097,565) and, unfortunately, that current reality doesn't look to change soon.

On Tuesday, Tal spoke with Financial Post’s Larysa Harapyn about the state of condos and the housing market in the Greater Toronto Area, with one of the big takeaways being that the market isn't heading where we think it's going -- with prices likely to continue to rise, similar to what's happened in other large cities like New York and London.

But until we get to that state, we need to understand where the market is currently at.

READ: GTA Condo Sales Soar 91% in March, Average Price Eclipses $675K

Amid the pandemic, homeowners began looking for low-rise, detached homes with more interior and exterior space, and enough room so they could comfortably work from home. As the demand for these units soared, so did prices.

During this time, the condo market began to grow relatively weak -- particularly the resale market.

However, Tal says this is now changing, "perhaps because detached homes are getting too expensive, or because people are realizing that the crisis will soon be coming to an end so they are returning to the downtown core."

Tal described a situation that's common in the states, with homeowners owning larger homes outside the downtown core, and also a condo in the city that they use for work. It's a trend he thinks will pick-up momentum in Toronto as the pandemic eases.

As such, Tal says investors are picking up on this trend, and he has already begun to see accelerated activity from investors taking advantage of the current low-interest rates, and as a result, he believes rents will rise again.

"2022-2023 will look very similar to 2019, with demand for rental units resuming," said Tal. He explained that this will occur as non-permanent residents, new immigrants, and students will also return to the city, further limiting the supply and subsequently bringing rents back up to normal levels.

As for the housing market, in a "short-term perspective," Tal says housing prices in the city are rising 20% year-over-year -- which isn't sustainable.

Tal says he thinks people are taking advantage of the low interest rates now because they think they will rise in the future.

"As people continue to take advantage of the window of opportunities when it comes to low-interest rates, so maybe we're actually borrowing activity from the future and so maybe we're accelerating now at the expense of next year. That's reasonable," said Tal.

But from a "long-term perspective," Tal said he believes "the fundamentals in the GTA housing market are consistent with that of higher prices, so if you think Toronto is unaffordable now, you wait."

He explained that when you look at cities like London and Manhattan, you know they are unaffordable. And given that the GTA will continue to grow, as will population, supply will continue to be an issue.

"The only way to ease the pain of when it comes to affordability is to introduce a rental solution to the puzzle we call the GTA housing market. We need more rental units, more purpose-built rentals in order to make sure there is an affordable channel in this environment," said Tal.

As for what's to come for the condo market, Tal says there has been a significant increase in units coming to the market, which is one of the reasons why rent is coming down, but this is coming to an end because many developers slowed down amid the pandemic, and will now resume.

"What we want to see is more supply coming to the market, but more purpose-built supply, not just condos," said Tal.

With Canada's next federal budget expected to be presented by finance minister Chrystia Freeland in the House of Commons on April 19, Tal was asked if speculates if there will be anything introduced to help cool the housing market.

"I don't think the government or the regulators need a Bay Street economist to tell them what to do. They know what to do," said Tal.

"I think there will be some measures that will slow down demand, but the real issue is supply and this is something we need to start working on," said Tal.

And while adding supply is a long-term solution, Tal added, "The big issue in the GTA and other places like Vancouver is simply a lack of supply given the significant increase in demand."