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“Do falling Toronto housing prices really improve affordability today?”
Today we are answering a few of our favourite questions, all with the same theme, “Is there a Toronto Housing Bubble?” and, if prices are going to drop will it improve buyer affordability?

When it comes to Real Estate in Toronto, everyone is always talking about prices, but what they really mean is affordability. What you can afford is equal to how much mortgage you can safely carry. Unfortunately though, as Toronto prices fall, interest rates rise. This actually does nothing to improve how much you can afford monthly.

Check out this chart below which maps out the total monthly payment, the amount paid to interest, and the amount paid to the principal as interest rates rise.

Related: Why the Best Day to Buy Real Estate is Yesterday

Related: Why the Best Day to Buy Real Estate is Yesterday

Let’s assume that for every 1% increase in interest rates that the market has a 10% correction in prices. Now, this is extreme, especially for the Toronto Real Estate market which tends to be less volatile than the GTA or surrounding suburbs. As of the latest data from June, the Toronto Real Estate market has seen an 11% decrease in prices since February’s peak according to TRREB. However, of more importance is that this is still 5.3% above June 2021. So, if you’ve been waiting for the market to crash you should know you’re still in a worse position than last year at this time as it specifically pertains to purchase price.

Now, let’s talk about interest rates and affordability. As I mentioned above, affordability is equal to how much mortgage you can safely carry. Unfortunately for buyers who have been waiting, affordability is actually falling along with Toronto Real Estate prices.

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