Market Watch Q4
December Results Point to Improving Conditions in 2024
Sales Dropped to 23-Year Low and Prices Declined 5% in 2023
The GTA housing market ended 2023 on a positive note, with demand improving during December as the Bank of Canada kept its policy rate unchanged for its third consecutive meeting and markets increasingly bet on rate cuts in 2024.
At the same time, supply declined as sellers held back in anticipation of better conditions next year. The combination of stronger demand and tighter supply supported a modest increase in selling prices.
For 2023 as a whole, price declines were also similar across housing types at approximately 5%.
However, tighter levels of supply for detached homes and semis/rows/towns supported annual growth in average prices in December of 2.5% and 4.6%, respectively, while condo apartment prices declined 3.1% year-over-year.
At $1.084 million in December, average selling prices increased 3.2% annually (Dec 2022 vs Dec 2023)
However, for 2023 as a whole, average selling prices declined 5.4% from 2022 — the first decline recorded for a calendar year since 2018 (-4.2%). Despite this, annual price growth averaged 8.3% over the past 10 years and 7.1% over the past 20 years. The long-term average increase since 1978 was 6.8%.
Inventory Updates
Across all housing types, sales declined by similar amounts in both 2023 and 2022. Condo apartment sales have performed best over the past three years, with milder declines in activity of 10% in 2023 and 37% in 2022, also following relatively stronger growth in sales of 52% in 2021.
Supply levels have been relatively higher for condo apartments in recent years, although condo inventory declined during December along with other housing types. The 4.8 months of supply for condo apartments decreased from a 15-year high of 5.4 months in November, while detached inventory fell from 3.6 to 2.6 months and inventory for semis/rows/towns fell from 3.0 to 2.1 months.
The 3,444 total sales in December grew 11% from a year ago, representing the first annual increase in activity since July. Nonetheless, sales last month remained substantially below (-27%) the latest 10-year average. For 2023 as a whole, the 65,982 total sales were at their lowest level in 23 years, declining 12% from 2022 (75,047) and falling 46% below the record high in 2021 (121,712).
2023 Saw Growth in Sales Priced Under $600K
For 2023 as a whole, all price categories above $600,000 experienced annual sales declines, with the largest decreases of 20% or more experienced for homes priced $1.25 million and higher, led by a 27% decline in $2 million-plus sales. At the bottom end of the pricing spectrum, sales increased 33% in 2023 compared to 2022 for homes priced under $600,000.
The roughly 66,000 resales recorded in 2023 and 75,000 sales recorded in 2022 were both substantially below the market’s long-term trend level of approximately 100,000 sales, indicating a very large and accumulating amount of pent-up demand for housing. While a softening economy and elevated interest rates compared to levels seen since the Global Financial Crisis will continue to create headwinds for buyers in 2024, some reduction in borrowing costs should help encourage a stronger level of homebuying activity this year
Detached Market Outperformed in City of Toronto during December
The best-performing markets in terms of sales growth in 2023 were all located in the 905 Region of the GTA. Vaughan resales grew 39% annually in 2023, largely driven by a number of newly completed condos, followed by 3% growth in Durham. King, Markham, Caledon, Pickering and Whitchurch-Stouffville all recoded annual sales declines of less than 5% in 2023. While average selling prices in 2023 were down across all GTA markets compared to 2022, the mildest declines were found in Markham (-1.7%), Toronto Central (-2.2%), and Richmond Hill (-2.5%).
The detached market performed better at the end of the year in the City of Toronto than in the 905 Region of the GTA. Detached sales in Toronto were up 20% annually, while median detached prices were unchanged from a year ago. In the 905 region, sales grew 12% and prices were down 2%, with slightly higher levels of supply than in Toronto (2.6 vs. 2.2 months).
Market conditions for semis/rows/towns and condo apartments were generally similar between the City of Toronto and 905 Region of the GTA. The lowest levels of supply were found amongst semis/rows/towns in Durham Region (1.3 months) and the highest levels of supply were for condo apartments in Peel Region (5.4 months).
Market Health based on Supply Levels
Seller’s Market = 4 months of inventory or less
Balanced Market = 4 - 6 months of inventory
Buyer’s Market = 6 months of inventory or more
After posting double-digit annual increases during the July-November period, new listings fell 7% year-over-year to 3,886 units — the second lowest December level of the past 22 years and 17% below the 10-year average.
While active listings at year-end end were 19% higher than a year ago and 20% above the 10-year average, they were 11% below the 20-year average and equal to 3.0 months of supply — a balanced level that dropped from 4.0 months of supply in November.
On the supply side, financial stress amongst households is not projected to lead to a meaningful rise in listings this year. While more mortgages are expected to come up for renewal at significantly higher interest rates, continued low unemployment, high levels of accumulated savings, increased incomes and reduced discretionary spending are all expected to keep defaults contained.
Key Takeaways
Aside from a brief spurt of optimism during the spring following the Bank of Canada’s initial interest rate pause, the 2023 housing market was plagued by weak consumer confidence and deteriorating affordability. It was no coincidence that as interest rates were raised to 22-year highs, sales fell to 23-year lows.
Despite the sharp pullback in sales, which was even more dramatic when measured on a housing stock adjusted basis, prices were remarkably resilient. The 5% decline in prices recorded for 2023 was marginal in the context of the 45% increase in prices during the preceding three-year period. This can be attributed to the structural undersupply of housing in the GTA, which fundamentally worsened last year as the population increased by a record amount and new home development slowed due to soaring interest and construction costs.
Most economists are predicting a mild recession that will last into the first part of 2024, which will help to bring down inflation (latest reading at 3.1%) closer to the Bank of Canada’s 2% target and pave the way for interest rate cuts. The consensus view is for the Bank of Canada to lower interest rates by 100 basis points (to 4.00%) by the end of 2024, with the first interest rate cut arriving in the second quarter. As this happens, bond yields are likely to continue falling and fixed-term mortgage rates should decline towards the 4% range heading into the spring, supporting an improvement in demand during the market’s peak selling season.
Against the backdrop of improved sales and manageable growth in listings, the GTA housing market is expected to be in balance during 2024, supporting modest growth in prices.