Real Estate Market Outlook for Spring

The Greater Toronto real estate market is clearly coming back to life. Over the past couple of weeks, we've started getting a large number of calls from prospective buyers. And it's not just the so-called "end users" waking up - people buying for themselves - we're also starting to hear from investors looking to buy property for investment purposes. Over the past two years, investors reaching out to us in Toronto have mostly been asking about refinancing, or asking whether it's even possible to sell a property that's turned into a money-losing one.

What's actually starting to happen right now is exactly what I've talked about repeatedly in my articles and video reports on the newGTAcondos YouTube channel. The end of a downturn always follows the same underlying laws. The only thing that differs is how quickly buyers come back to the market. Over my 30 years in real estate, I've seen downturns end almost instantly, and I've also seen markets take several years to recover.

So what do all these downturn endings have in common, and how do they differ?

Let's look at what's happened in past downturns and try to predict how this one will play out. And I think practically everyone already understands that the real estate downturn is ending. Today, sellers are only really asking themselves how much longer they need to wait to sell their house or condo at an acceptable price, while buyers are wondering how much time they still have before they miss out on the great deals that are still widely available on the market.

What's been consistent across every previous downturn is a chain reaction that happens for a few specific reasons. During a downturn, the market is essentially dead: prices fall first, then stabilize and sit flat. And right when the downturn appears to be winding down, a psychological moment kicks in.

At that point, buyers start wondering whether it's already time to buy, or whether prices might dip a little further and it's worth waiting for the bottom. Meanwhile, sellers who were willing to negotiate hard at the height of the downturn, thinking prices might drop even further if they didn't sell right away, become less flexible at this stage.

Then, someone has to pull the trigger. It could be real estate board statistics showing even a small uptick in prices, or a modest return of market activity. It could be news coverage, or even just rumours that someone sold quickly and well, or, conversely, that someone trying to buy a house or condo ran into a bidding war and lost out. At this point, it's a purely psychological factor, but it's capable of flipping the market very quickly. The moment buyers and sellers both sense that the market has turned, the chain reaction kicks off.

Buyer psychology: "We need to go buy right now, or we'll miss the best deal out there."
Seller psychology: "I'm not negotiating at all. If they don't want to buy at my asking price, I'll sell for more tomorrow."

From there, buyers who've looked at every property that suits them and haven't been able to negotiate the discount they wanted anywhere start buying at the asking price. The statistics show rising prices, and anyone who was still on the fence rushes into the market. That's when the downturn ends. From there, it's only up. This psychological factor always works the same way and doesn't change from one downturn to the next.

How quickly the market shifts from a buyer's market to a seller's market, and how fast the flywheel starts spinning and prices start climbing, depends on other factors. First, how many prospective buyers are sitting in a holding pattern. Second, how much inventory is available on the market. If there's enough inventory, and it's roughly in balance with returning demand, the recovery will be slow. If inventory is scarce, the takeoff will be very fast.

Now let's come back to our current situation. We're clearly in the phase right now where buyers sense that it might be time, but aren't fully convinced yet. On one hand, spring is coming, the lending rate has been cut again, and common sense suggests prices won't fall any further and will likely start climbing soon. On the other hand, there's political instability - Trump and his tariffs, a shaky economy, and prices that are still sitting flat. So buyers aren't rushing - they're waiting for someone to pull the trigger.

What event will pull that trigger this time isn't clear yet. It could be a change in power in Canada from the Liberals to the Conservatives, some acceptable resolution on Donald Trump's tariffs, good news about economic recovery, or something else entirely.

The rate cuts have already had an effect, and they'll keep fanning the flames. A lot of prospective buyers are already able to qualify for a mortgage today, and as rates keep coming down, that number will keep growing. At this point, it's really not about the rates anymore, even though they're still high. It's about uncertainty - nobody has pulled the trigger yet. Buyers don't have 100% confidence that it's time to move faster; they're still sort of half-asleep. But events are just about to happen that will snap them out of that lethargy. And that's when things get really interesting.

There's also a very large amount of inventory on the market right now, which means that even once buyers come flooding back en masse, that inventory won't get snapped up instantly. Unfortunately, it's very hard to predict right now how long that will take. Over the past three years, enormous pent-up demand has built up, but at the same time, the cost of living during this high-rate downturn has gone up so much that people have less in savings than before. That will naturally take some people out of the pool of prospective buyers. But I believe those who are still in a position to buy far outnumber them.

The inventory currently sitting on the market will also disappear from two directions at once. On one hand, it'll get bought up. On the other, sellers will start pulling their listings. It's worth remembering that a large share of listings, especially in the condo segment, belong to investors. Many put their properties up for sale because they became money-losers under high interest rates. If it weren't for payments that shot through the roof, most of these investors wouldn't even be thinking about selling. But you can't hold onto a property that's losing money without some kind of financial cushion. And a lot of people got so used to the stability of the real estate market over the past 10 years that they simply forgot one of the basic rules of real estate investing: keep part of your money in assets you can quickly convert to cash.

Payments are normalizing now. Why sell a property at a depressed price if it's starting to pay for itself again? So in the near future, we'll likely see a lot of investors who were previously trying to sell pull their properties off the market instead. That, by the way, is one of the factors that will affect rental prices going forward.

I recently put out a video on our newGTAcondos YouTube channel where I talk about what rent is likely to cost in the near future, with advice for both tenants and landlords. I'd recommend giving it a watch.

Right now, it's practically impossible to calculate exactly how quickly we'll come out of this downturn, or when real estate prices will catch back up to their February 2022 peak. I can only share my own opinion. I think prices are most likely to reach that February 2022 peak no earlier than the second half of 2026. Given everything going on right now, the recovery is likely to be a slow one.

Home prices should start climbing already this spring. The situation with condos is somewhat worse, and I expect prices in that segment to stay roughly flat through 2025. Overall, experts expect Toronto real estate prices to rise by roughly 5% over the course of 2025, with 2026 bringing even more significant price growth to the Toronto market.

So my advice to buyers is to take advantage of the current situation to make a purchase. As for sellers, if you have the flexibility to wait, it's probably worth not rushing.