MARKET UPDATE FOR THE WEEK ENDING FEBRUARY 24TH 2023

What will Toronto’s spring housing market look like? Experts expect a 20% jump in sales — and an increase in supply.

This year’s spring housing market won’t see a surge anything like the spring markets of past years, experts say. But Toronto could see sales increase by 20 per cent, and a record-high number of condo completions will help boost supply.

GTA sales were down by almost 45 per cent in January 2023, compared to the same time last year, and the average sales price was down by more than 16 per cent during the same time period, according to the Toronto Regional Real Estate Board.

Real estate experts forecast a marginal bump in sales and new listings this spring but say the market won’t be as robust. “Homes sales in Toronto and across Ontario haven’t been this low since the 1990s, so from that perspective it’s clear that demand is unnaturally low,” said Ben Rabidoux, founder of Edge Realty Analytics, a real estate data firm. “Sales won’t remain at this level.”

Heading into the spring, he predicts sales will increase by 20 per cent, which is substantial. But unit sales
will still be 30 per cent below the January and February 2022 sales peak. Sales won’t be close to what we’ve had in previous springs,” he said. Typically, there are 10,000 transactions a month in the springtime. So far in February, there have been 5,883 sales of homes and condos in the GTA, he added. “I think we’ll get up to 7,000 in the spring.”

Around 60 per cent of the sales were for properties under $1 million. Of the houses sold over $1 million, around 25 per cent had a basement apartment, he said. It’s a trend he believes will continue long-term.

In addition, a record-high number of new condo completions slated for 2023 will provide greater housing stock. “It will be interesting to know how many investors want to hold on to the condo or sell it. It’s harder for them to cover the mortgage with rentals, which won’t be able to adjust to the higher interest rates,” he said.

Around 32,000 new condo units will be completed this year in the GTA — more than the previous high in 2020, when 22,473 units were completed — as well as 7,740 new purpose-built apartments — the highest in at least three decades, according to an Urbanation report.

If sticky inflation and a tight labour market persists — and the U.S. Federal Reserve continues rate hikes — the Bank of Canada will be pressured to hike the rate another 0.25 per cent at least. Inflation was down to 5.9 per cent in January. The Bank’s inflation target is two per cent.

While the market is adjusting to higher mortgage rates the Bank of Canada is taking a pause on rate hikes for the time being. But it might not be done using its monetary policy this year.

MARKET UPDATE FOR THE WEEK ENDING FEBRUARY 17TH 2023

There finally seems to be some optimistic news released from The Toronto Regional Real Estate Board (TRREB) for the year ahead. Considering all the doom and gloom that have made headlines in recent months, the second half of this year will see a gradual uptick in home sales and an increase in competition between buyers with a renewed upward pressure on home prices in the GTA. TRREB Chief Market Analyst Jason Mercer suggests that “it will be a year of two halves in 2023.”

“The first half will feel similar to the fall of 2022 due to the lingering effects of higher borrowing costs and related economic uncertainty. However, recent polling by Ipsos suggests buying intentions are edging up. The second half of 2023 should be characterized by an increase in demand for ownership housing, supported by lower fixed mortgage rates, a relatively resilient labour market, and record immigration,” continued Mercer.

The Ipsos data reveals that buyers are expecting to return to the market after a string of successive interest rate hikes from the Bank of Canada which sent buyers reeling and quickly cooled market conditions. Mercer expects that trend to reverse in the coming months.

2023 Market Outlook Highlights

• There will be a total of 70,000 sales which is below the 2022 result.

• The average selling price will reach $1,140,000 for all home types combined.

• Buying intentions are up slightly compared to last year, with 28 per cent of respondents indicating

  that they will consider purchasing a home in 2023.

• Listing intentions (those very likely or somewhat likely to list their home) for 2023 are up

  compared to 2022 for townhomes and similarly to 2022 condominium apartments and semi- detached houses. Listing intentions for detached homes appear to be trending lower.

On the back of record immigration supported by job creation in a diversity of sectors, the population of the Greater Golden Horseshoe (GGH) is set to climb 71 per cent by 2051. This obviously presents huge economic benefits, but also significant risks from the perspectives of housing supply, transportation, and other infrastructure.

“The GTA and surrounding GGH region are competitive globally in terms of economic, social, and cultural diversity. This is why people and businesses want to move here in record numbers. In order to sustain this growth, we need to ensure that we have an adequate and diverse supply of housing. This housing must be supported by the appropriate infrastructure. Recent policy initiatives at all levels of government seem to acknowledge this, but it’s time for these policies to actually translate into tangible results,” said TRREB President Paul Baron.

MARKET UPDATE FOR THE WEEK ENDING FEBRUARY 10TH 2023

If you really wanted to help Toronto, you’d buy a new home. Here’s why.

The city is banking on this being one of the best years ever for real estate sales to bring in land transfer tax revenue. Mayor John Tory would really, really appreciate it if you would buy a new house or condo this year. In fact, he’s counting on it.

Call it your civic duty. In the proposed 2023 budget Tory unveiled last week, the city is banking on $947.7 million in revenue from the municipal land transfer tax — the additional fee Toronto buyers are charged when they buy a house or condo in the city.

That $947.7 million is the exact same amount city hall budgeted for last year. The assumption is that 2023 will be one of the very best years for land transfer revenue since the tax was implemented in 2009, behind only 2021’s $1.18 billion and the final take for 2022. (City hall is still waiting for final year-end actuals for last year.)

And this is revenue city hall is relying on. When it was introduced in 2009, municipal land transfer tax revenues made up less than two per cent of Toronto’s budgeted tax revenue. In 2023, it’s supposed to bring in nearly seven per cent. Replacing it would require a 24 per cent residential property tax increase.

When Councillor Gord Perks asked about the land transfer tax budget projection at a meeting of city hall’s budget committee last month, City of Toronto CFO Heather Taylor was optimistic. She noted that the city was on pace to exceed the budgeted land transfer tax amount for last year.

“We are confident based on the trend we have seen over the last six months in that forecast taking us into 2023,” Taylor explained. “We’ve done detailed analysis and we are comfortable with what is in the budget.” 

Of course, that analysis was done before anyone had seen the January sales numbers. The Toronto Regional Real state Board reported that just 1,108 Toronto home sales occurred in January, down an incredible 50 per cent from the same month last year. And the problem, of course, is that Toronto’s real estate market does not look set to have a whopper year.

That makes January 2023 the third-lowest monthly mark for Toronto real estate sales since 2009, ahead of only pandemic-ravaged April 2020, when just 1,036 transactions occurred, and January 2009, when the world was dealing with a financial crisis and 1,106 homes were sold.

Prices are down too, though not as much. The average price of houses and condos sold in January dropped from about $1.2 million a year ago to $1 million. But even if prices stabilize, the danger for city hall’s revenue take remains. The city only gets a cut when a sale occurs, so a market of high-priced homes that aren’t selling frequently is a recipe for reduced tax revenue.

Taylor also explained that the budgeted figure has built in a kind of insurance against a downturn. Of the $947.7 million in budgeted revenue, only about $800 million is set to go toward ongoing operating expenses. The remainder is budgeted for longer-term capital projects, like road repair or new infrastructure construction. 

Even if a sudden market recovery somehow delivers on Toronto’s 2023 land transfer tax projections, it will remain concerning that city hall’s ability to pay for vital infrastructure hinges on this annual real estate gamble.

MARKET UPDATE FOR THE WEEK ENDING FEBRUARY 3RD 2023

As we moved from 2022 into 2023, the Greater Toronto Area (GTA) housing market unfolded
as expected. The number of January sales and the overall average selling price were similar to December 2022. The average selling price in January was $1,038,668 — down 16% compared to January 2022 but not significantly changed from the $1,051,216 average seen in December.

GTA REALTORS® reported 3,100 sales through TRREB’s MLS® System in January 2023 – in line with the December 2022 result of 3,110, but down 44.6 per cent from January 2022. New listings, however, remained steady. January saw 7,668 new listings in the region — a small 3.7% decrease compared to the 7,983 listed in January 2022. The decrease, TRREB data reveals, was fairly even between the City of Toronto and the rest of the GTA.

On a year-over-year basis, both sales and prices were down markedly, continuing to highlight the impact of higher borrowing costs on affordability over the last year. 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.

In the last couple of weeks, the Toronto housing market was showing surprising signs of life and brought a sudden flurry of sales. Bidding wars and bully offers were making a comeback, renewed interest in open houses, an uptick of showings being booked and listings with offer dates.

With some confidence returning to the market, pent-up demand from buyers who sat out the fourth quarter is one reason for the spurt. Many have pre-approved financing lined up and they wanted to take advantage of the rate they were offered.

While short-term borrowing costs increased again in January, negotiated medium-term mortgage rates, like the five-year fixed rate, have started to trend lower compared to the end of last year. This coupled with interest rate hikes likely on hold for the foreseeable future will prompt some buyers to jump back in. Although renewed market activity may be music to sellers’ ears, it’s posing challenges for some buyers as they remain cautious, as some price discovery takes place.

A tight labour market and strong population growth are expected to keep demand for housing strong, and TRREB points to policies like Mayor John Tory’s 2023 Housing Action Plan that are striving to increase supply, which could subsequently, and hopefully, bring improved affordability.

MARKET UPDATE FOR THE WEEK ENDING JANUARY 27TH 2023

The Bank of Canada raised its benchmark interest rate this week by 25 basis points to 4.5 per cent, the highest it’s been since 2007. The move was widely expected by economists as the bank tries to wrestle record-high inflation. It’s the eighth time in less than a year that the bank has hiked its trendsetting rate — a move that will make borrowing money more expensive.

But at one quarter of a percentage point, it’s also the smallest hike since March, and thus a sign that the bank may be done with hiking rates for the next little while. The bank said as much at a news conference following the announcement, with governor Tiff Macklem using the word “pause” to describe the bank’s monetary policy strategy at this moment.

“With today’s modest increase, we expect to pause rate hikes while we assess the impacts of the substantial monetary policy tightening already undertaken,” he said. “To be clear, this is a conditional pause — it is conditional on economic developments evolving broadly in line with our ... outlook. “If we need to do more to get inflation to the two-per-cent target, we will.”

All five of Canada’s biggest lenders moved swiftly to raise their own prime lending rates in response, adding the same 0.25 percentage point adjustment, to bring their rates to 6.7 per cent, starting Thursday. The exact impact will depend on the loan, but in general, Wednesday’s hike will add about $15 to a variable rate mortgage payment every month, for every $100,000 worth of debt. That’s coming on the heels of the seven previous hikes.

The hikes so far have managed to bring inflation down from about four times the normal level to only about three times, but the central bank says it’s confident that the rate will come down sooner than many are anticipating. According to the latest projections in the Monetary Policy Report, also released Wednesday, the Bank of Canada expects the headline inflation number to come down to as low as three per cent by the end of this year, and then two per cent next year.

What a 25-point increase means for you - According to Ratehub.ca a homeowner who put a 10% down payment on a $626,318 home with a five-year variable rate of 5.3% amortized over 25 years (total mortgage amount of $581,160) has a monthly mortgage payment of $3,480. With the 25-basis point rate increase this homeowner’s variable mortgage rate will increase to 5.55% and their monthly payment will increase to $3,564. This will result in the homeowner paying $84 more per month — or $1,008 per year — on their mortgage payments.

MARKET UPDATE FOR THE WEEK ENDING JANUARY 20TH 2023

The Canadian rental market showed little signs of cooling down as 2022 came to a close. Average national rent remained above the $2,000 mark in December, for the second straight month, and the story was similar in the majority of local markets.

This is according to a new National Rent Report by Rentals.ca and Urbanation, based on data from RentFaster.ca which put the average rate of annual rent increase for all of 2022 at 10.9%. This was the first year since 2019 in which the national market saw a positive rate of annual increase.

The report attributes the almost 11% increase to “a recovery from declines experienced during the pandemic, record-high population growth, a large pullback in home buying, and structurally low vacancy rates.” It also notes that the strong growth in rents occurred in 2022 despite a record high for total apartment completions last year.

“The Canadian rental market had one of its strongest years ever in 2022, more than reversing any weakness experienced during the pandemic,” said Shaun Hildebrand, President of Urbanation. “Rental demand is primarily being driven by a quickly growing population that is finding it increasingly more difficult to afford homeownership or find suitable rental housing. Looking ahead for 2023, rents are expected to continue rising, but less heated growth can be expected as the economy slows, and new rental supply rises to multi-decade highs.”

Of all municipal markets included in the report, Toronto and Vancouver remained the most expensive markets as of December, with rates increasing 22.7% and 21.2%, respectively. Meanwhile, strong economic momentum in Calgary spurred rent growth of 22.6%, earning it the second spot for rent growth. Ottawa and Edmonton saw annual increases of 14.5% and 11.7%, respectively, while Montreal lagged behind any other large city, observing just 6.6% in annual growth.

MARKET UPDATE FOR THE WEEK ENDING JANUARY 13TH 2023

All Toronto residential property owners must submit a declaration of their property’s 2022 occupancy status by February 2, 2023.

A property is considered vacant if it was not used as the principal residence by the owner(s) or any permitted occupant(s) or was unoccupied for a total of six months or more during the previous calendar year. Properties may also be deemed (or considered to be) vacant if an owner fails to make a declaration of occupancy status as outlined in the bylaw.

The goal of the City of Toronto Vacant Home Tax is to increase the supply of housing by discouraging owners from leaving their residential properties unoccupied.

Homeowners who choose to keep their properties vacant will be subject to this tax.

An annual tax will be levied on vacant Toronto residences, payable beginning in 2023. Revenues collected from the Vacant Home Tax will be allocated toward affordable housing initiatives.

All residential property owner(s) in Toronto will be required to declare the occupancy status of their property(s) annually, even if they live there. Declarations must be made by the homeowner or someone acting on behalf of the owner. The declaration will determine whether the Vacant Home Tax applies and is payable.

A Vacant Home Tax of one percent of the Current Value Assessment (CVA) will be imposed on all Toronto residences that are declared, deemed or determined vacant for more than six months during the previous year. For example, if the CVA of your property is $1,000,000, the tax amount would be $10,000 (1% x $1,000,000).

The tax is based on the property’s occupancy status for the previous year. For example, if the home is vacant in 2022 the tax will become payable in 2023.

Owners of properties subject to the tax will be issued a Vacant Home Tax Notice in March/April and payment will be due on May 1st.

Residential properties will be deemed vacant if the owner fails to make the annual declaration by the deadline of February 2nd and/or provide supporting documentation.

If there is an error in the declaration you submitted, you can:
• Submit a new declaration prior to the February 2 declaration deadline • File a Notice of complaint if it is after the declaration deadline

Failure to declare or making a false declaration may result in a fine of $250 to $10,000.

There are some exemptions where no tax is payable if the property is vacant:
• The Owner has died in the Taxation Year or in the previous Taxation Year
• The Vacant Unit is undergoing repairs or renovations, and the following conditions have been met:
(a) Occupation and normal use of the Vacant Unit is prevented by the repairs or renovations for at least six months of the Taxation Year
(b) All requisite permits have been issued for the repairs or renovations
(c) The City’s Chief Building Official is of the opinion that the repairs or renovations are being actively carried out without unnecessary delay.

• The Principal Resident of the Vacant Unit is residing in a hospital, long term or supportive care facility for a period of at least six months during the Taxation Year

• Legal ownership of the Vacant Unit has been transferred to an arm’s length transferee in the Taxation year

• The Vacant Unit is required for occupation for employment purposes for an aggregate of at least six months in the Taxation Year, by it’s Owner who has a Principal Residence outside of the Greater Toronto Area

• A court order is in force which prohibits occupancy of the Vacant Unit for at least six months of the Taxation Year

MARKET UPDATE FOR THE WEEK ENDING DECEMBER 16TH 2022

Developers are hitting the brakes. Pandemic buyers are panicked as appraisals come up short. Is this the end of Toronto’s condo mania?

A pre-construction condo in the GTA was a safe way to invest and gain equity. Indeed, for a decade this seemed like a solid bet. Investors poured money into condos, which sprouted like weeds and dramatically transformed the Toronto skyline. Around 80 per cent of pre-construction condos are sold to investors.
But since the March 2022 price peak for condos, prices have dropped in both the 905 region and Toronto by an average of $91,000.

As the possession dates for these new condo owners nears, the bank appraisal, which is done to ensure the current market value of a property is in line with the size of the mortgage loan, many condos are falling short of the appraisal value. Some as much as $200,000, less than what they paid for it two years ago. What’s more, the variable mortgage rate advertised when they signed the purchase agreement in 2020 was around 1.5 per cent. Now, it’s closer to six per cent.

Instead of being able to borrow all the money they need from the bank to pay the developer for the unit, they now have come up with the cash to make up the difference. Some buyers are wondering how they are supposed to close the transaction. Appraisals are coming in so low; people don’t have the extra $100,000 to $200,000 to close.

If presale condo buyers want to get out of their purchase agreement — either from low appraisals or unmanageable mortgage rates — at best they lose the deposit (typically 10 to 15 per cent of the unit cost) and walk away from the agreement. But the developer can sue for significant damages, which can force buyers to declare bankruptcy.

Rising rates and inflation are also hitting developers, as the cost of building goes up. It’s all starting to impact condo projects as investors back out of deals and some developers decide to wait on the sidelines for the market to settle. For the first time, it’s beginning to look like there are cracks — large ones at that — forming in Toronto’s once-booming condo market.

GTA pre-construction condo sales in the third quarter of 2022 declined by 79 per cent from a year ago. Outside of the initial months of the pandemic in the second quarter of 2020, this was the lowest quarter for GTA new condo sales since the 2009 financial crisis, according to a report from Urbanation, a development-tracking market research firm. The long-term impacts could be significant, real estate experts say, as new development slows, further straining the city’s housing supply shortage. As a result, prices will be pushed higher as demand continues to outstrip supply in the coming years.

At the beginning of 2022, around 35,000 new condo units were anticipated to launch in the GTA. Of those, 10,000 units have been delayed. Some projects will no longer be possible to build after not meeting their sales targets to qualify for construction financing. “In the GTA, the primary form of new housing is condominiums and primary purchasers are investors,” said Shaun Hildebrand, president of Urbanation. “When investors become uninterested it directly interferes with the supply pipeline. It’s a problem.”

For a new condo building to be built, 75 to 80 per cent of the units must be sold beforehand to finance the project. On average, it takes three to five years for a mid- to high-density building to be built from start to finish. That means developers rely on the sale of the units to see the construction of the building to the finish line.

There are also troubling headwinds from the rise in assignment sales — a legal transaction in which the original pre-construction condo buyer transfers the rights and obligations of the purchase agreement to another buyer.

In Ontario the number of assignment listings grew 73 per cent between March and April 2022 following the first Bank of Canada interest rate increase. From July to September, assignment listings rose by 129 per cent, according to data from BrokerPocket, a real estate agent-only platform for off-market listings. Typically, in a 300-unit building, there would be approx. 30 assignment listings. Now, its it’s closer to 60 listings.

The slowdown in new condominiums sales and presale launches is not expected to negatively impact construction activity until the second half of 2023, as developers remain active starting work on the large number of units sold in previous quarters, the Urbanation report found.

MARKET UPDATE FOR THE WEEK ENDING DECEMBER 9TH 2022

Rising rates hits hardest at detached and semi-detached house prices

Less expensive condos and townhomes held their value better in November than costlier detached and semi- detached houses in the Toronto region, as home sales declined across all categories with higher interest rates continuing to increase the monthly carrying costs of a home.

The average price of all types of homes — from condos to detached houses — dropped 7.2 per cent year- over-year to $1.08 million, the Toronto Regional Real Estate Board (TRREB) reported on Tuesday. But detached home prices dipped 11.3 per cent to an average $1.4 million and semi-detached houses fell 13.9 per cent to $1.04 million.

Condos, however, remained relatively stable, declining only 0.9 per cent annually to an average price of $708,636. Townhomes saw a slightly greater 6.4 per cent year-over-year drop to $900,314 on average.

“With interest rates going up there has to be a mitigating factor and that was price. It makes sense that you’d see more of an impact on price at the higher end of the market,” said the real estate board’s chief market analyst Jason Mercer.

He said that the Toronto housing market is, however, showing signs of stabilizing.

The short supply of new listings on the market has helped buoy prices, which have remained within an average of $1.08 million to $1.09 million since the summer. That represents quite a bit of stabilization in the market compared to what we saw between February and June.

GTA Average Sale Price
July $1,074,754
August $1,079,500
September $1,086,762
October $1,089,428
November $1,079,395

November’s 4,544 home sales saw a 49 per cent drop compared to the same month last year but only slightly below October’s 4,949. The 8,880 new listings were down 11.6 per cent annually. Active listings, however, rose 96 per cent year-over-year as it took more homes longer to sell.

The Bank of Canada (BOC) raised its overnight rate by half a percentage point – 50 basis points on Wednesday, to curb high levels of inflation and cool housing prices across the country. It will certainly affect the latter, experts contend. Another half a percentage point hike in mortgage costs will further sideline homebuyers and drive housing prices lower, just as it is meant to.