Toronto, Ontario, August 4, 2022 - Our Toronto Regional Real Estate Board’s monthly statistical report, MarketWatch, was released by Board president Kevin Crigger this morning showing 4,912 homes were reported sold by member Realtors® through the Board’s MLS® System last month - about half of the sales volume compared to last July. Not surprisingly, inventory was up significantly as was the time it took to sell a home in Toronto and The Greater Toronto Area. The average sale price was virtually flat. The combination of high prices and a market apparently “exhausted” from extremely heavy demand combined with very tight supply has - finally - triggered a correction in the housing market. All figures quoted herein are year-over-year comparisons unless otherwise noted.
The average sale price in July came in at $1,074,754 overall - meaning all home types across TRREB’s entire market area. That was up 1.2% from $1,061,724 a year ago… and a far cry from the thirty-percent-plus increases we’ve been seeing in some instances in the recent past.
As we’re all well aware, inventory has been a huge problem with demand outstripping supply by such a wide margin that some have proclaimed a “housing shortage”, prompting calls for governments to fast-track approval of new housing developments. As we’ve gone on record saying here before, that supply/demand issue was probably more an issue of artificially low interest rates than it was a “lack of homes”. Sure - demand outstripping supply resulted in “Forward Inventory” levels reaching historic lows… but, as always, market forces would prevail sooner or later. And here we are.
Average selling prices were up “moderately” across the board, with the exception of Detached homes.
Newly listed homes actually fell YoY by 4.1% to 12,046. But with homes taking longer to sell - and fewer selling - Total Active Listings were up substantially as noted below.
Sales of Detached homes in Metropolitan Toronto were down 43.6% to 477 at an average sale price of $1,515,763, down 7.3%. In the balance of the Greater Toronto Area - “The 905” [area code], generally - 1,726 sales were reported for the Detached group, a 46.9% drop, at an average of 1,320,269, down 1.9%.
What needs to be pointed out, though, is that - while residential real estate figures are best compared on a year-over-year basis due to the significant seasonality of the market, sometimes ya gotta look at the smaller picture: Prices - for the moment at least - effectively peaked in February - when we also noted possible "winds of change" - at $2,073,989 in "The 6ix" - Metro Toronto - and $1,727,963 in the balance of our market area. We have a retreat since that point in time, then, of $558,226 - or about 27% - in the former, and $407,694 - or about 23% - in the latter for the Detached group. Buyers rejoice. Except for the ones who entered the market recently. Ouch. Stories of purchase agreed to a few months ago not closing - or closing at re-negotiated sale prices - are common. In some instances it’s the buyer walking away from the deal. Not a great strategy given the potential ramifications pertaining to law suits, credit rating damaged, etcetera. In some cases is not the buyer’s choice: Market values being lower at closing time than they were when the Agreement of Purchase and Sale was negotiated can result in mortgage lenders declining to advance funds. Big problem.
Sales volume in the Condo Apartment sector suffered even more than Detached homes, though prices fared better - no doubt due to the lower price point. In Metropolitan T.O., 963 units sold in July, off 44.9, averaging $744,092, up 4.3%. The balance of the GTA saw 402 sales, off 52.9%, averaging $659,820, the best performer on the month in that regard at +11.9%.
On the Inventory Front
As noted above, homes newly listed for sale were actually down YoY. When a market goes into softening mode as ours has, there's a period of time early on during which it's been said that home sellers go into "denial": They've seen what comparable homes have sold for and there's a natural reluctance to accept that their property is now worth less than it was a short time prior. That may be why new listings are down. The more relevant figure - Total Active Listings - tells the truer story.
Total Active Listings in July were up 57.6% from the year-earlier period to 15,334 [versus 9,731]. That gives us "Forward Invetory" [Total Active Listings versus the month's Total Sales which gives us an indication of how long it will take to sell the currently listed homes... assuming, of course, that the rates of sales and new listings remain constant] of 3.12 months. That's pretty much in line with historical norms, but a very far cry from the severely constrained numbers we've seen in the recent past. Those hit lows in the "weeks" - never mind "months" - and contributed very much to the crazy, unsustainable jumps in home prices.
TRREB President Kevin Crigger: “With significant increases to lending rates in a short period, there has been a shift in consumer sentiment, not market fundamentals. The federal government has a responsibility to not only maintain confidence in the financial system, but to instill confidence in homeowners that they will be able to stay in their homes despite rising mortgage costs. Longer mortgage amortization periods of up to 40 years on renewals and switches should be explored."
Board CEO, John DiMichele: “Many GTA households intend on purchasing a home in the future, but there is currently uncertainty about where the market is headed. Policymakers could help allay some of this uncertainty. As higher borrowing costs impact housing markets, TRREB maintains that the OSFI mortgage stress test should be reviewed in the current environment."
TRREB Chief Market Analyst Jason Mercer: “The Greater Toronto Area (GTA) population continues to grow and tight labour market conditions will drive this growth moving forward. Despite more balanced market conditions resulting from rapidly increasing mortgage rates,
policymakers must continue to take action to boost housing supply to account for long-term population growth.
TRREB has put realistic solutions on the table to address the existing housing affordability challenges. With savings high and the unemployment rate still low, home buyers will eventually account for higher borrowing costs. When they do, we want to have an adequate pipeline of supply in place or market conditions will tighten up again.”
OK - but, generally speaking, if you think something’s going to be cheaper tomorrow, you’re less likely to buy it today. Particularly at the scale of real estate, price-wise. Will they be lower tomorrow? Significantly? Nobody really knows, of course. That’s been the trend of late, obviously, and some form of pause was not only long overdue, it’s actually healthy from a general “market” standpoint. We’re already seeing signs of increasing activity & inquiries - particularly for Bungalows / One Storey homes as empty nesters - a primary driver of that market segment - a] maybe feel the value of their present, often larger, home has peaked, and b] are finally seeing some inventory to actually make selling feasible where that involved purchasing the home they want for their latter years. This style of home is also popular with younger buyers - partially because, often, it’s relatively easy to add a second [e.g. basement] rental unit to help with the mortgage payments - and with investors for the same reason - and with the reno / contractor folks because there’s room to expand outward/upward and/or many older Bungalows need updating to varying degrees - which means profit margin.
The average time it took to sell a home in Toronto and The GTA was 19 “Listing Days on Market”. That was “35.7% slower / longer” than last July’s 14 days. That's also PDQ - pretty darned quiick - by historical standards.
As summer begins to wane and we move into the fall market, we'll see if long-suffering buyers begin to turn up en masse... and sellers in denial come to their senses. That latter phenomenon is a function of motivation, at the root of it all: Once a home in the neighbourhood sells at the "new norm" it re-sets the benchmark -- pricing is all about the most recent comparable sales.
As always, thank-you for stopping by. Get out and enjoy the gorgeous weather!
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