Market Watch, October 2023 | The Toronto Real Estate Market Report With Chris Kapches

In many ways, the Toronto and area residential resale market reflected September’s results in October. Sales volumes were practically unchanged, further emphasizing how sluggish the market has become and they continued the string of historically low sales numbers for this time of the year.

In October, 4,646 residential properties were reported sold, almost 6 percent fewer than the 4,930 reported sales last year. Year-to-date, 56,367 homes have changed hands. Based on the current pace of sales, the year will finish with about 70,000 reported sales. Aside from 2018, (and of course, 2022, when the Bank of Canada began its draconian rate increases when only 78,017 homes changed hands), we have to go back 2 decades to see such low sales numbers. The low sales volumes in 2018 were due to the implementation of the then Liberal government’s 2017 Ontario Fair Housing Plan.

The Plan introduced a non-resident speculation tax (NRST), and it expanded rent control to all private rental units, including those built after 1991. A government statement at the time boasted that the Plan was designed to “make housing more affordable… to create fairness and opportunity during this period of rapid economic change”. Since the implementation of the Plan, the NRST has increased from 15 percent to 25 percent of the purchase price of a property. In 2017, the average sale price for properties sold in the greater Toronto area was $822,510. This October, the average sale price for all properties sold came in at $1,125,928, an increase of 37 percent over the last six years. Affordability has clearly not been achieved. A clear indication of the ineffectiveness of government intervention in the residential resale marketplace, particularly when that intervention is politically and not realistically motivated.

Surprisingly the average sale price has continued to rise while sales volumes have declined.

Early in the year, the average sale price had strengthened. Buyers acted confidently during the Bank of Canada’s lull in benchmark rate hikes. Once the Bank again started to implement rate hikes in June and July, the average sale price dropped to a low in August. Since August, the average sale price has once again strengthened. In October, the Bank held its benchmark rate at 5 percent. It is clear that the Toronto and area real estate market dances to whatever tune the Bank of Canada plays.

Toronto’s strong average sale price is one of the few positive signs in the resale market. In October, for the first time in many months, the average-sale-to list price came in at 99 percent (although in the City of Toronto it came in at 100 percent) for all properties sold. Since late 2020, the sales-to-list ratio has always exceeded 100 percent. The sales-to-list ratio was also much lower than we have seen since the depths of the Covid pandemic. In October, the sales-to-list ratio for the greater Toronto market was 47.3 percent. It was lower in the City of Toronto, coming in at 45.8 percent, due to sluggish condominium apartment sales. Before the Bank of Canada began implementing its punishing policy rates, the sales-to-list ratio was around 70 percent.

What is interesting is that properties that do sell are not spending lengthy periods of time on the market before being reported sold. In October, (on average) all properties (including condominium apartments) spent only 21 days on market: exactly the same number of days as October 2022. Depending on housing type and location, some properties were “flying off the shelf”. For example, detached properties in the City of Toronto all sold in 17 days, and for 100 percent of their asking price. Semi-detached properties all sold in 13 days and for 103 percent of their asking price.

Condominium apartment sales were not nearly as robust. Across the region, it took 26 days for condominium apartments to sell. They sold at 98 percent of their asking price. The average sale price came in at $729,160, almost 2 percent lower than last year. This is not surprising given that of the 8,535 listed properties available for sale in the City of Toronto, 4,825, or 57 percent, are condominium apartments.

Going forward, rising inventory levels may begin to erode the strong, prevailing average sale prices that are being achieved. In October, 14,397 new properties came to market, a 38 percent increase compared to the 10,433 that came to market at the same time last year. These new homes that came to market have increased available inventory levels to 19,540 properties, more than 50 percent higher than the 13,019 properties available last year. It is anticipated that a large number of five-year term mortgages will be coming due in 2024 and 2025. If the current high mortgage rates stay in play – five-year term mortgage interest rates are currently slightly more than 6 percent – no doubt some renewing borrows will be forced to sell and perhaps even go into default. In October, Canada’s main banking regulator directed banks to hold more capital against mortgages that have seen their repayment terms extend beyond their original terms owing to the pace of interest rate hikes. A cautious step to contain risks that are building in Canada’s mortgage market.

Interest rates and affordability are driving, or rather controlling, the Toronto and area marketplace. The Bank of Canada’s pause in October was highly welcomed by consumers and particularly mortgage borrows and buyers. For the market to pick up, even to pre-Covid levels, the Bank of Canada will have to reduce rates. The pent-up demand can not wait for that to happen. As it stands, it is a fractured market, with strength in some areas – price, depending on housing type and location – but weaknesses in others – sales volumes.

Prepared by: Chris Kapches, LLB, President, and CEO, Broker