Sales Volume Down But Prices Remain Steady
GTA Market Analysis – October 2023
The Greater Toronto Area (GTA) housing market stands strong even in the face of challenging economic conditions. Over the past few months, there has been an uptick in home values, with a cumulative increase of $43,432, and a second consecutive monthly rise of $6,500. This puts the average GTA home price at $1,125,928, reflecting a year-over-year increase of $36,500. Among the various housing segments, the detached category continues to show strength, with a monthly increase of $9,326 and a year-over-year gain of $77,674.
While prices have not increased as much as they did earlier in 2023 and remain lower than the peak of March 2022, the resilience of the GTA market offers confidence to both prospective homebuyers and investors. It appears that the GTA housing market remains highly attractive and is resilient to the prevailing economic challenges.
“Competition between buyers remained strong enough to keep the average selling price above last year’s level in October and above the cyclical lows experienced in the first quarter of this year. The Bank of Canada also noted this resilience in its October statement. However, home prices remain well-below their record peak reached at the beginning of 2022, so lower home prices have mitigated the impact of higher borrowing costs to a certain degree,” said TRREB Chief Market Analyst Jason Mercer.
The stability of the housing market was highlighted in the recent release from the Bank of Canada. “Normally, house prices move pretty lockstep with interest-rate increases,” Bank of Canada senior deputy governor Carolyn Rogers said at a news conference Wednesday, where she was discussing the bank’s decision not to hike its rate further. “As interest rates come down, house prices go up a bit. And they’ll come off as interest rates come back up,” she said.
“We’re not seeing the decline in house prices that we would expect,” she continued, adding that there is a “structural lack of supply” of housing in Canada, and that until it is fixed, “interest rates on their own are not going to help us get back to a housing affordability situation or solution.”
One of the primary hurdles for potential homebuyers continues to be the structural lack of housing supply. However, there is some relief on the horizon as inventory levels have shown improvement, reaching 19,540 active listings in October, the highest since June 2019. With more properties available on the market and a moderating demand due to high borrowing costs resulting in slower sales, the housing market is transitioning to a more balanced state. In October, the number of home sales remained relatively subdued, with 4,646 transactions occurring. Notably, the sales figures for detached and semi-detached homes saw a modest uptick of 0.37% and a more substantial increase of 6.47%, respectively, while the condo and townhouse segments experienced slight declines of 0.84% and 3.83%.
While more inventory for buyers to choose from is a welcome relief for homebuyers, some have questioned whether more homes available for sale are a sign of distressed homeowners, unable to meet their mortgage commitments. Recent research from Royal LePage suggests that while higher interest rates are stressful for Canadians, the number of people who are missing mortgage payments remains at historical lows. In fact, only 15 out of every 10,000 mortgages in Canada are in arrears for more than ninety days.
With more inventory available than in previous years, this fall and winter may be an excellent opportunity for prepared and qualified buyers to make their move. Economic data indicates that the Canadian economy is contracting and that inflation, while still higher than the Bank of Canada's target, has also slowed in recent months. These factors reduce the likelihood that the Bank of Canada will raise rates again in the coming months, and we may even see an interest rate decrease in 2024. A stable or slightly lower interest rate environment will compel buyers to move off the sidelines, driving up competition for homes once again. As such, we may look back on the next six months as having been the best opportunity for homebuyers looking for more choice with less competition to have entered or moved up in the market.
Bank of Canada says it is not seeing the decline in house prices it had expected
The Bank of Canada says higher interest rates have not dragged down home prices as much as expected, because a shortage of homes in the country is keeping values elevated. The central bank kept its benchmark interest rate unchanged Wednesday at 5 per cent – up from just 0.25 per cent in March, 2022, when the bank began a series of rapid rate hikes intended to bring inflation under control. Over that same period, the typical price of a home across the country has fallen 13 per cent, a modest decline considering the sharp increase in borrowing costs.
“Normally, house prices move pretty lockstep with interest-rate increases,” Bank of Canada senior deputy governor Carolyn Rogers said at a news conference Wednesday, where she was discussing the bank’s decision not to hike its rate further. “As interest rates come down, house prices go up a bit. And they’ll come off as interest rates come back up,” she said.
“We’re not seeing the decline in house prices that we would expect,” she continued, adding that there is a “structural lack of supply” of housing in Canada, and that until it is fixed, “interest rates on their own are not going to help us get back to a housing affordability situation or solution.” READ MORE
Survey suggests majority of Ontario mortgage holders concerned about upcoming renewals
A new survey suggests that a majority of Ontarians who will be renewing their mortgages in the next 18 months are worried about costs going up. The Royal LePage survey conducted by Nanos found that 21 per cent of respondents in Ontario will be renewing lease agreements within the next year and another 15 per cent will be up for renewal 12 to 18 months from now. Of those, 74 per cent are worried about it, given the series of rate hikes from the Bank of Canada.
The survey was conducted before the Bank of Canada's announcement on Wednesday that it would hold its key interest rate at 5 per cent after several rate increases since March 2022, when the overnight lending rate was 0.25 per cent. Of those concerned about renewing, more than a quarter of respondents said they have considered either extending the amortization period (28 per cent) or switching lenders (27 per cent). Twenty per cent said they might extend their mortgage term, while 16 per cent said they are considering reducing the next term. Fifteen per cent might switch to a fixed-rate mortgage and 16 per cent said they might switch to a variable rate mortgage. FULL ARTICLE HERE
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