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Housing Market Update: A February uptick for GTA home prices and sales

The Greater Toronto Area housing market is continuing to show the evidence of a steep correction, as the February numbers reveal sales are down -47% from the same time last year, and the average home price by -17.9%.

A total of 4,783 homes traded hands last month according to the Toronto Regional Real Estate Board, at an average of $1,096,617. The MLS Home Price Index benchmark, which reflects the typical price of a home with the highest and lowest extremes stripped out, is also down similarly by -17.7%.

As the board points out, though, this will be the last month of data that compares today’s market conditions to last year’s pre-rate hike environment, with deep declines reflecting just how dramatically higher borrowing costs have impacted buyer demand. Last February is also widely considered by analysts to be the peak in terms of homebuyer demand and price growth, before interest rates began to rise.

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However, while sales are down by nearly -50%, a drop in new listings has helped constrain just how much prices have fallen, with supply and demand tight enough to keep conditions from venturing into a buyers’ market. TRREB reports 8,367 properties were brought to market in February, a year-over-year decline of -40.9%.

The board also points out another tell-tale sign that buyers are grappling with higher mortgage rates; a greater share of lower-priced homes making up the sales mix. Transactions priced under the $1-million mark now account for 57% of sales volume, compared to 38% last February.

“It has been almost a year since the Bank of Canada started raising interest rates,” said TRREB President Paul Baron. “Home prices have dropped over the last year from the record peak in February 2022, mitigating the impact of higher borrowing costs. Many homebuyers have also decided to purchase a lower priced home to help offset higher borrowing costs. The share of home purchases below one million dollars is up substantially compared to this time last year.” 

The sales-to-new-listings ratio for the GTA – a metric that reflects the level of competition among home buyers – is 46.6%, indicating the market is largely balanced in terms of supply and demand. However, this is poised to tighten back up as more buyers return to the market, which TRREB anticipates will happen in the second half of this year as mortgage rates stabilize.

“Recently released Ipsos polling suggests buying intentions have picked up for 2023. This increased demand will run up against a constrained supply of listings and lead to increased competition between buyers,” said TRREB Chief Market Analyst Jason Mercer. “This will eventually lead to renewed price growth in many segments of the market, especially those catering to first-time buyers facing increased rental costs.”

And there are already signs that the market is picking back up for the typical spring rush; on a month-over-month basis, sales are actually up 53% from frosty January – a typically slower month and also one where rates rose, as the Bank of Canada hiked by 0.25% on the 25th.

Prices are also heating up in the short term, with homes selling for an average of $57,949 more this month, an increase of 5.5%. On a monthly basis, the average price followed the regular seasonal trend, increasing relative to January 2023,” states the board’s release. New listings also rose by 8.8% month-over-month.

Suburban markets continue to see steeper annual declines

As has been the long-term trend, prices have performed slightly better on an annual basis in the City of Toronto. The average home cost dipped -11.5% compared to last February at $1,071,043; a price difference of $139,449. Sales came in at 1,745, down by -45.7%, and new listings falling by -32.2%, with 3,314 homes brought to market. However, compared to January, sales and prices are up 57.4% and 8.4%, respectively, and new supply has increased by 10%.

The 905 markets continue to absorb the deepest year-over-year declines, following the dramatic boom in demand and prices over the pandemic. Sales are down 47.7% YoY with 3,038 transactions, and the average price is down by just over $290,000 (-20.8%) from the same month last year, at $1,109,731. New listings are down -45.4% with 5,053 homes brought to market. Compared to January, sales rose 52.5%, with the average price up 4% ($42,793), and new listings rising by 8%.

The bottom line

The direction of the GTA housing market will depend heavily on where mortgage rates trend next. The Bank of Canada is largely anticipated to hold its key Overnight Lending Rate in its next rate announcement this Wednesday, which will bring some much-needed stability for variable-rate mortgage holders. However, fixed mortgage rates have been on the rise lately, as the bond market reacts to persistently high inflation, especially in the US. That’s driven lenders to increase their fixed-rate mortgage prices in recent weeks. 

Overall, the mortgage market remains volatile, as the economic picture shifts quickly. The tone of this upcoming BoC announcement will offer valuable new insights into what the central bank has planned for rates in the coming months.

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