Market Watch Q2
How’s the Market Looking in Q2 of 2022
Housing Market Continues to Slow in May Amid Higher Interest Rates
With interest rates on the move, the market continues to adjust. Following 75 basis point increases to the Bank of Canada’s key policy interest rate made in two moves during March and April housing market activity slowed materially in May.
Housing sales were down 39% annually from last years near record high, while sliding 9% month-over-month (normally sales rise between April and May) and falling 25% below the 10-year average.
The appreciation of residential real estate has historically averaged approximately 6% over the past 30+ years, however, more recently at the peak of the market we have seen average appreciation much closer to 20% or higher in some markets like Brampton or Durham region.
Market values normalizing from the short period of abnormal behaviour
The exciting news is we have another half of the year to go! With market values normalizing from the short period of abnormal behaviour, Buyers can confidently shop for a home and feel much better about the sustainability of todays prices.
Average prices decreased for the third straight month in May, declining 3.3% from April and down 9.0% from the peak reach in February. At an average of $1.21 million, prices were still up compared to a year ago (+9.4%) and 40.4% higher than two years ago, outpacing the 20-year annual average of 8.1%.
With population growth continuing to drive demand and supply remaining low we will likely see stabilization over the summer. This may not result in prices spiking again in the Fall, however it will likely provide a foundation for our real estate values. As a homeowner today, although you may feel you “missed the peak” in February, your home value is still outperforming historic norms. Its important to keep in mind that based on historic price increases the average sale price should be between $1,064,000 (7% appreciation from June 2020) and $1,125,000 (10% appreciation from June 2020).
Compared to a year ago, sales activity for detached homes was down across all price segments
Change in Detached sales
Compared to a year ago, sales activity for detached homes was down across all price segments, with the largest declines reported for the lowest priced properties.
However, when examining the month-over-month change in sales between April and May, activity rose in the lower-end of the market, with detached houses selling for under $900K rising 31% in volume.
Detached sales also rose monthly for $900-999K homes (+15%) and $1-1.249 million homes (+6%), while experiencing a relatively mild decline (-7%) for $1.25-1.49 million homes. There were monthly sales declines for detached homes with consistent slowing across all price segments above this threshold
Supply for condo apartments has been rising as investors initially react to the changing market conditions by trying to sell for near-peak prices. Active listings for condos rose 25% month-over-month in May to reach 2.5 months of supply, compared to inventory levels of 2.1 and 1.8 months for detached and semi/row/town homes, respectively.
Despite having the highest amount of supply, condo apartments have recorded the mildest declines in prices thus far. Average condo prices decreased 2.1% month-over-month and were down 3.7% over the past three months.
The condominium market continues to see price increases even as sales volume has slowed. Prices for condos are up just over 9% as they continue to be a more affordable asset class compared to detached, semi-detached and townhomes.
Within the condo apartment market, sales were up year-over-year in May for units selling for between $700 and $999K, with annual gains in activity of between 11% and 17%. Price appreciation over the past year caused sales to drop 83% annually for units under $500K and 64% for units $500-599K. In the case of the latter, however, activity rose 12% month-over month. Most of the monthly slowdown in condo sales was for units above $700K.
New Construction Market
The new-construction market has changed as demand has shifted. With labour and material costs on the rise some developers have begun to delay the launch of their projects and have begun to focus on the sale of standing inventory in existing developments.
There are some still great opportunities to purchase new construction, please never hesitate to contact me if you have any questions.
Supply Adjustment To a Balanced Market
New listings in May were essentially flat compared to a year ago (+0.5%) and rose a mild 1.4% month-over-month. However, the drop in sales caused the ratio of sales-to-new listings to fall to a 56-month low of 39%, which was below the lower boundary of a balanced market (45%) for the second consecutive month. This was partly driven by re-listing activity as seller’s adjusted their pricing strategies to changing market conditions
Active listings, which is a better indicator of supply, grew 22% year-over-year in May. Supply is rising, but off of a low base as active listings were significantly below historically normal levels during the past three years. The 2.1 months of supply in May represented a notable market transition from the low of 0.5 months of supply at the end of 2021, but stayed in line with the 10-year average (2.0 months) and was still below a balanced level (3-4 months).
With fewer homes being traded, the number of active listings have increased, currently just over 16,000, which will put some downward pressure on prices.
This is a good thing. As a seller who has owned their home for some time, they have and continue to enjoy the appreciation of their asset over recent years. As a buyer there is a greater choice of product as the number of available homes for sale continues to rise
What’s a Price Indicator?
Between April and May, sales and prices decreased more in the 905 region of the GTA than in the City of Toronto for detached homes. Within the City of Toronto detached prices decreased 4% monthly compared to a 7% decline in the 905, although Central Toronto prices rose 2% from April to $2.4 million.
Prices for semis/rows/towns in the City of Toronto were the most stable in May, recording the smallest monthly decline of 2% and maintaining inventory below two months. For condo apartments, the month-over-month decrease in sales and prices was fairly consistent across the City of Toronto and 905 regions, noting that Central Toronto condo prices recorded a relatively mild 2% monthly decrease after experiencing the smallest run-up in prices over the past year (+10%).