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GTA housing market rebalances in July as higher rates slow sales

July 2023 TRREB recap

Homebuyers combing through GTA-area real estate enjoyed slightly better choice in July, as the pace of sales stabilized and badly-needed supply came to market.

The Toronto Regional Real Estate Board (TRREB) reports that transactions, supply, and the average home price all ticked up on a year-over year basis, though the number of sales lagged new listings. A total of 5,250 homes traded hands over the MLS system, marking a 7.8% increase compared to July 2022, while 13,712 listings came online, up a robust 11.5%.

That helped chill the tight seller-friendly conditions that have defined the market in recent months though price growth remained persistent; the average GTA home price rose 4.2% to $1,118,374, with the MLS Home Price Index – which measures the most typical home sold – increasing by 1.3%. However, prices were fairly flat on a monthly basis, coming in -1.4% below June levels, marking an average drop of $16,746.

Also read: National home sales slow in June as buyers react to rate hikes

According to TRREB’s analysts, slower mid-summer conditions can be directly related to the return of the Bank of Canada’s hiking cycle; the central bank ended its brief rate-hold stance in June, when it increased its benchmark rate by 0.25%, followed by another quarter-point hike in July. As a result, the Bank’s Overnight Lending Rate now sits at 5% – a 22-year high – which has caused variable mortgage rates to spike. Fixed mortgage rates have also increased steeply in recent months as bond yields, reacting to monetary policy and recession concerns, have broached the 4% threshold. July marks the second month in a row where sales have trended lower on a short-term basis, while new listings have increased.

 “Home sales continued to be above last year’s levels in July, which suggests that many households have adjusted to higher borrowing costs. With that being said, it does appear that the sales momentum that we experienced earlier in the spring has stalled somewhat since the Bank of Canada restarted its rate tightening cycle in June,” said TRREB President Paul Baron. “Compounding the impact of higher rates has been the persistent lack of listings for people to purchase compared to previous years.” 

TRREB Chief Market Analyst Jason Mercer says that a mix of softer economic conditions and higher borrowing costs has impacted homebuyer demand.

“Uncertainty surrounding the direction of borrowing costs, jobs and the overall economy has impacted home sales over the last two months,” he stated. “Over the long term, the demand for ownership housing will remain strong on the back of record population growth. However, many homebuyers will continue to be on the sidelines in the short term until the direction of monetary policy and the economy becomes clearer.”

A cooling economy is part of the Bank’s goal in its efforts to reduce the rate of inflation growth back down to its target range of 2%. Recent data reports – such as promising June inflation numbers and softer-than-expected GDP – indicate that the central bank’s hiking cycle is indeed making an impact, though interest rates are expected to remain elevated until at least the second half of 2024. Today’s lowest five-year variable mortgage rate currently sits at 5.95%, with the lowest five-year fixed mortgage rate at 5.19%.

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Condos continue to lead market demand

July 2023 sales and price data by home type from the Toronto Regional Real Estate Board.

As borrowing costs remain elevated and affordability levels at record lows, it’s clear buyers are seeking out the most affordable entry points to the market. Condo unit sales saw the largest percentage increase in sales with a total of 1,505 transactions across the GTA, up 11.1%, at an average price of $735,171 (2.1%). However, detached houses were the most-sold housing type in terms of volume, with 2,378 changing hands (9.1%), with an average price tag of $1,427,257 (4.8%). 

Townhouse sales totalled 874 units (7.5%), selling at an average of $956,066 apiece (5.8%). Semi-detached houses were the only home type to see a year-over-year decline in sales with 445 transactions (-4.9%), at an average price of $1,101,876 (2.8%).

905 markets see greatest uptick in July sales

Buyers set their sights outside of city limits in July, with sales booming across the 905 markets. A total of 3,3654 homes sold in these regions, marking a 10.4% increase, compared to 1,886 sold in Toronto (3.4%).

While price gains were modest in both the 905 and 416, it was stronger within the latter, rising 4.6% to an average of $1,066,184. Prices overall remain higher in the 905, though, up 3.7% to $1,147,634.

Both territories saw a healthy dose of new housing supply; a total of 5,117 homes were listed within the city of Toronto (16%), with 8,595 coming to market within the 905, marking an 8.9% increase.

What’s next for the GTA real estate market?

As the board’s top brass have pointed out, borrowers continue to adjust to today’s pricier interest rate environment, but overall market activity won’t truly spring back to life until buyers and sellers have greater peace of mind on where rates are headed next. Should the Bank hold rates in its next announcement on September 6, activity may start to pick back up within the GTA housing market.

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