Higher mortgage rates continued to make their mark in the Greater Toronto Area housing market in January, with the latest data revealing downright frosty demand and price conditions.
According to the Toronto Regional Real Estate Board (TRREB), homebuyer activity was essentially flat between December and January, though a year-over-year comparison shows steep drops in both sales and home prices.
A total of 3,110 homes traded hands over the course of last month, a -44.6% difference from January 2022, and further fuelling price correction with the region’s average coming in at $1,038,668 (-16.4% year over year). The MLS Home Price Index, which measures home values with the extreme highs and lows stripped out, also fell by -14.2%.
This was most evident in the GTA’s outer suburbs, which saw sales and prices explode during the boom years of the pandemic. That growth is now unwinding, with the deepest price declines in the 905, plunging -21.2% to $1,066,938, a dollar difference of $288,735 compared to last year. Sales fell by -40.6% with 1,992 homes sold.
Meanwhile, sales are down by -50.4% in the City of Toronto with 1,108 transactions, though prices are proving stickier within city limits, falling -7.8% to $987,842.
Rate hold could help boost buyer demand
The numbers highlight just how dramatically the Bank of Canada’s rate hiking cycle – which kicked off last March – has impacted the housing market, with a before-and-after perspective that hints at where the market may have trended before rates started to rise.
The central bank has increased its overnight lending rate, which lenders use to set their prime rates – and by extension, variable borrowing products such as variable mortgage rates and lines of credit – eight times between March 2022 and January 2023. That brought the benchmark cost of borrowing from a pandemic low of 0.25% to 4.5%, the fastest pace of rate increases on record since the 1970s.
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However, the BoC’s most recent announcement that they are switching to a rate hold mandate in coming months could support recovering housing demand, say TRREB’s analysts.
“Home sales and selling prices appear to have found some support in recent months. This coupled with the Bank of Canada announcement that interest rate hikes are likely on hold for the foreseeable future will prompt some buyers to move off the sidelines in the coming months. Record population growth and tight labour market conditions will continue to support housing demand moving forward,” said Toronto Regional Real Estate Board (TRREB) President Paul Baron.
In addition to stabilizing variable rates, fixed mortgage rates have dropped slightly in recent weeks in response to slowing bond yields; another cause for optimism, says TRREB’s Chief Market Analyst Jason Mercer.
“Home prices declined over the past year as homebuyers sought to mitigate the impact of substantially higher borrowing costs. While short-term borrowing costs increased again in January, negotiated medium-term mortgage rates, like the five-year fixed rate, have actually started to trend lower compared to the end of last year,” he says. “The expectation is that this trend will continue, further helping with affordability as we move through 2023.”
Sellers are sticking to the sidelines
The data also shows continued hesitancy among sellers; many have opted to wait out today’s slower market conditions in hopes that buyer demand – and bidding war scenarios – will return in the coming months.
There wasn’t much added to the market last month, with just 7,588 new listings – down -3.7% annually. There’s also a whole lot more inventory sitting around, with a total of 9,244 active listings, more than double last year’s levels at an increase of 124.6%. Due to this, the GTA market could be considered balanced, with a sales-to-new-listings ratio of 47.6%. (According to the Canadian Real Estate Association, a ratio between 40 - 60% indicates a balanced market, with above and below that threshold indicating seller’s and buyer’s markets, respectively.)
A look at the market by home type
Despite today’s pricey mortgage picture, detached, single-family houses continue to drive the bulk of sales in the GTA, with 1,384 sold, down- 37.6% year over year. However, this home type has absorbed the deepest decline in annual prices, down -23% to $1,341,848. Similar declines were seen in the semi-detached segment, with 240 sales (-45.5%) and prices down $22.3% to $1,019,668.
Prices fell to a lesser degree among townhouses and condos, as they have a lower-cost entry point and absorbed smaller price run-ups during those sizzling pandemic months. Sales for townhouses fell by -43.5% with 499 units sold, while prices dipped by -18% to an average of $887,610. Condos experienced the largest drop in sales, down -52.7% with 950 units sold, likely due to a greater proportion of first-time buyers being priced out by mortgage rate hikes. However, this segment saw the smallest price decline, down -8.1% to $687,696.
The bottom line
If you’re a homebuyer actively looking to purchase a property today, and have confirmed your affordability with a mortgage pre-approval and rate hold, now could be an advantageous time to do so without competitive aspects of a hotter market.
However, buyers and borrowers are still contending with some of the toughest affordability conditions seen in years, and any potential recovery in the housing market remains heavily reliant on interest rate direction; prospective buyers and sellers are wise to keep an eye on the Bank of Canada’s movements in the coming months.