Market Watch Q3
How has the market behaved in this past quarter?
Prices increase for a second Consecutive Month in September
After activity perked up in the month of august, the total volume of sales in the GTA declined 44% year-over-year to 5,038 transactions in September. The 12-month rolling sales total fell to 87,362 — the lowest level in two years and falling further below the 10-year trend level of just over 100,000 sales. The number of new listings increased 7% from August but fell 17% annually to its lowest September level since 2002.
The ratio of sales-to-new listings at 45% and months of supply at 2.7 remained within balanced territory during September. Active listings at month-end totaling 13,535 units were 30% below the 20-year average.
To summarize, the sales volume is at it’s lowest year over year and month over month since 2002. The amount of transactions has decreased severely due to a number of factors.
Price Gains focused on More Affordable Housing Types in September
Despite having low number of transactions, the average price is still increasing during the month of September.
Resale market activity remained restrained during September as affordability continued to erode and consumer confidence continued to fall. However, there been some emerging signs of stability as listings have followed in the same direction as sales, creating a near-term floor for prices.
At $1.087 million, average resale prices have increased by 1.2% (+$12,794) over the past two months but experienced a 4.2% annual decline — the first year-over-year decline for GTA prices since May 2018.
Average prices were up 13% compared to two years ago and were 40% higher than five years ago. The 20-year average annual rate of price growth in the GTA was 7.2%.
City of Toronto Prices Increase Across All Housing Types in September
Median selling prices rose 2% month-over-month for detached and semi/row/town homes, and by 1% for condo apartments in the City of Toronto during September. Meanwhile, median prices were flat for detached and semi/row/town homes in the 905, with 905 condo prices also rising 1% monthly.
Average selling prices for condo apartments and semis/rows/towns recorded month-over month increases of 2.7% and 2.0%, respectively, while detached prices slipped by 0.7% from August.
As of September, five-year price growth was strongest for semis/rows/towns (+43%) and condo apartments (+41%).
Condo apartment prices increased last month despite sales falling 50% annually during September — the steepest drop in activity by housing type. Condo apartments also had the weakest sales-to-new listings ratio at 38% and the highest amount of inventory on the market at 3.5 months.
Part of the explanation behind the rise in average prices for condo apartments during September was a compositional shift in activity towards more expensive units in the City of Toronto.
Nonetheless, condo apartments were the only housing type to maintain positive year-over year price growth in September with a 3% gain, compared to a 10% annual drop in detached prices and a 3% decline in average prices for semis/rows/towns.
Low Supply levels support increase in selling prices
Low supply helped to support a 0.7% month over month increase selling prices during September, despite sales volumes remaining at a 20-year low.
Recent data shows prices and sales levels are beginning to bottom-out. This has largely been supported by the exceptionally low amount of supply in the market and large amount of “shadow demand” looking for the right deal. Further downside risks for prices could materialize if the Bank of Canada needs to continue acting aggressively to tame inflation, if the economy enters into a deep recession and lending tightens up significantly, and if listings begin to trend sharply higher as homeowners face unbearable mortgage cost increases.
Supply levels were generally lower in the 905 than in the City of Toronto during September across all housing types.
Overall, downside risks remain contained and the positive outlook for the GTA’s fundamental housing demand drivers and deteriorating outlook for supply as new development scales back continues to support the long-term outlook for housing values
Has the Bank of Canada Affected Prices?
The market has been profoundly impacted by the aggressive moves by the Bank of Canada to fight off inflation, raising their benchmark interest rate from a low of 0.25% in March to 3.25% in September. The size and speed of the recent interest rate increases hasn’t been seen in nearly 30 years.
The combined effect of higher borrowing costs, high prices, and increased economic uncertainty has removed a lot of buyers from the market for the time being. Despite the recent price declines, affordability has continued to worsen, with the full effect of rate increases not yet felt as buyers in September were able to take advantage of rate holds under 4%. Current variable and fixed-term mortgage rates are above 5%.
Overall, demand for housing in the GTA has continued to rise, as the population has begun to quickly expand and the job market has strengthened. This can be viewed through rental market activity, which showed average condo rents rising 14% over the past six months and 20% year-over-year in September.
The ownership market should remain suppressed in the near-term as the Bank of Canada continues increasing interest rates. The consensus view is for the benchmark rate to rise to 4.0% by the end of 2022, with further marginal increases, if any, in early 2023. This view is based on the expectation that inflation has peaked — annual inflation slowed to a four-month low in August but at 7% remained well above the target range of 1-3%.
As interest rates begin to level-out, the market will adjust more to higher borrowing costs. As this happens, prices will continue to find their footing and eventually see some recovery next year. However, with rates remaining higher than the market has been accustomed to in recent years, a modest pace for housing activity can be expected – i.e. it may take a while to get back to peak prices in early 2022.