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High mortgage rates spooked GTA home buyers in October

TRREB October 2023 update

Sky-high mortgage rates continued to bite into home buyers’ affordability in October, with sales falling on an annual basis for the third month in a row.

A total of 4,646 properties traded hands across the Greater Toronto Area last month, marking a year-over-year decline of -5.8%, according to the Toronto Regional Real Estate Board. On a monthly basis, transactions were flat, at 0.8%.

Steep borrowing costs are the main factor behind dampening sales, as they’re pushing more prospective buyers into the rental market, says TRREB President Paul Baron.

“Record population growth and a relatively resilient GTA economy have kept the overall demand for housing strong. However, more of that demand has been pointed at the rental market, as high borrowing costs and uncertainty on the direction of interest rates has seen many would-be home buyers remain on the sidelines in the short term,” he says. “When mortgage rates start trending lower, home sales will pick up quickly.”

GTA home prices still up year over year

While cooling sales are chipping away at price growth, the region’s average of $1,125,928 has yet to dip below last year’s levels, posting a 3.5% increase; flat from September at a difference of just 0.5%.

“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 onslaught of freshly-listed properties seen in recent months also appears to be easing in the short term, with 14,397 homes brought to market – -11% fewer than in September. Compared to last year’s 12-year low, however, they’re up by 38%, but still remain below the 10-year average. 

Meanwhile active listings – a measure that reflects the overall number of homes for sale – sits at 19,540, a 50% increase compared to last year.

It remains to be seen whether the most recent rate hold from the Bank of Canada will spur buyer confidence in the months to come; the central bank opted to keep its trend-setting interest rate at 5% in its October 25 announcement, marking the second month in a row without a rate change and prompting expectations that the hiking cycle has come to an end.

While that ushers in new stability for borrowers, mortgage rates – and the stress test – remain elevated, keeping affordability well out of reach for many would-be buyers, as well as presenting challenges for borrowers coming up for renewal on their mortgages.

Also read: Think mortgage rates will drop? The argument for getting a variable rate now

This is an issue that OSFI, Canada’s banking regulator, should address to ease affordability for existing mortgage holders, argues TRREB CEO John DiMichele.

“In the current environment of extremely high borrowing costs, it is disappointing to see that there has been no relief for uninsured mortgage holders reaching the end of their current term. If these borrowers want to shop around for a more competitive rate, they are still forced to unrealistically qualify at rates approaching eight per cent,” he says. “Following their most recent round of consultations, the Office of the Superintendent of Financial Institutions should have eliminated this qualification rule for those renewing their mortgages with a different institution.”

Condos are only home type to see price drop

TRREB October 2023 home sales and prices.

As has been the autumn trend, transactions were down across all home types in October, with the largest declines seen in the townhouse segment which, with 726 sales, fell -11.5% on an annual basis. That was followed by detached homes, which were down -5.7% with 2,157 deals, and semi-detached houses, down -3.2% with 428 sales. A total of 1,296 condos sold in the GTA, down -2.2%.

However, condos were the only home type that failed to hang onto year-over-year price gains; the average unit sold for $708,780, down -1.2%. Detached houses saw the largest price gains, up 6.1% with an average sale price of $1,450,112, followed by semi-detached homes at $1,102,721 (2.1%). Townhouse prices rose 1.1% to an average of $930,185.

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City of Toronto sees smaller sales gap

While home sales fell across the GTA in October, they were slightly more stable within the City of Toronto; a total of 1,836 homes traded hands within city limits, marking a year-over-year decline of -2.3%, compared to a -7.8% drop in the surrounding 905 markets, where 2,810 homes sold.

Home prices, while up, were similarly modest in both regions. Properties sold for an average of $1,127,635 in Toronto – a difference of 3.6% compared to last year, and a dollar difference of $40,125. The average 905 property, meanwhile, sold for $1,124,812, marking a 3.4% ($37,302) difference.

New listings soared similarly across the GTA with a total of 5,669 in the City of Toronto (38%), and 8,728 in the 905 (37.9%).

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