October 2023 - Will the GTA Housing Market Experience a Sharp Decline?

I hope this newsletter brings clarity to what you've heard or seen in the news:

What Trends are we Seeing?

The eerie feeling from August in terms of market pace and expectations has come to fruition in September.? Depending on what their objectives are in the market, individuals are either excited about the change or concerned about what comes next.

Prices on the Toronto Regional Real Estate Board (TRREB) continue to escalate with the average price being up approximately three per cent month-over-month to $1,119,428 in September 2023.? The average price is incidentally also about three percent higher than that seen in September 2022.

The transactional perspective offers an alternative headline; A decline in sales paired with an influx in new listings has resulted in a textbook definition of a buyers’ market.? The sales to new listing ratio (SNLR) for September 2023 was 28.6 per cent.? A balanced market is one where the SNLR is between 40 per cent and 60 per cent.? A SNLR below 40 per cent is a buyers’ market, and above 60 per cent is a sellers’ market.?

The condo market in particular, is experiencing a slowdown. We have seen condo and townhome sales in the Greater Toronto Area down 12.8 per cent compared to the first eight months of last year.? Prices in this segment have dropped as well with the condo and townhome average sale price sitting at $747,040 which is 6.2 per cent lower from the same period last year. However, it is important to look at the statistics in the communities you are focused on. Nine areas in the 905 region have seen sales growth this year (Brock, Clarington, Uxbridge, King, Georgina, Richmond Hill, Vaughan, Stouffville and Burlington).? Price point is driving the growth in sales as 70 per cent of the year-to-date sales of condominium apartments range between $500,000 to $799,000 and 65 per cent of condominium townhome sales ranged from $600,000 to $899,999.

What Lies Ahead?

As we move forward with the remainder of the year and have our sights set on what 2024 may look like, we see homeowners who are beginning to prepare for what could be anywhere between a 14 per cent to 25 per cent increase to their mortgage payments.? In some instances, homeowners have been extending their amortization period to 35 years plus. However, we may see homeowners make decisions to deleverage from their homes to avoid the substantially higher payments and create an influx of homes in the market.? Buyers who were previously qualified under lower rates and purchased pre-construction condominium units that are now coming to completion may also generate activity in the market, as they are forced to assign or sell their properties which they are no longer qualified for under the current rates.

While it sounds refreshing for buyers to hear that an influx of options may be flooding the market for them to choose from in 2024, and that September 2023 officially sits in buyers’ market territory, the overriding lack of supply versus demand continues to be most prominent.? The Canadian Mortgage and Housing Corporation (CMHC) has indicated that Canada still needs 3.5 million more homes to close the affordability gap by 2030.? Furthermore, $ 1 trillion in investment would be needed to achieve said affordability in Canada, to which the public sector cannot be the biggest rock moved to accomplishing this goal, as 95 per cent of the housing stock is privately owned. ??

With two opposing forces of increased supply shadowed by a looming overarching lack of supply, the market is looking to see what the tie breaker may be for the immediate future. With interest rates playing such a dominant role in the mindset and financial feasibility of buyer decisions, it will likely be the deciding factor. It is expected that when unemployment rates are finalized for September 2023, we will have realized approximately a 5.6% increase in unemployment.? Should this come to fruition, it would increase the odds that the Bank of Canada will hold interest rates constant for the October 26, 2023 rate announcement.? As much as affordability should be the dictating factor on buyer mindset, it is often not. Should interest rates hold, we suspect that buyers will increase and absorb the additional supply coming to the market. This will create a relatively balanced market with prices being stable or nominally changing up or down monthly until the end of the year.

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