The Review · Vol 09/24 · August 2024
From snooze to moves: why Toronto's market is about to wake up.
Written by Pawel Parafianowicz, Founder | Broker, Coral Realty Group ·
With an incredibly slow summer behind us—and by slow, we mean really slow—active inventory hit levels not seen in over a decade. Maybe it was the beautiful weather keeping everyone outside enjoying life instead of house hunting.
Now, as we move into September, the market is starting to shift. Buyers are slowly returning, but it feels like we’re not seeing the same level of inventory as we did over the summer. It’s possible that some sellers, frustrated after trying to sell without success, have opted to lease their properties instead.
On top of that, several significant developments have emerged that could impact both buyers and sellers in the coming months.
Buyer's or seller's market?
5.0 months of inventory: an extreme buyer's market.
- Seller's under 2
- Balanced 2–3.5
- Buyer's 3.5–5
- Extreme buyer's 5+
Every August, months of inventory
Canada & U.S. rate cuts: inflation hits 2% target, bigger moves expected
The recent rate cut by the Bank of Canada barely moves the needle. It’s a minor tweak, not the bold action needed to significantly impact borrowing costs. Meanwhile, the U.S. showed more guts with a hefty 50-bps cut, putting Canada under pressure to follow suit. With inflation finally hitting the Bank of Canada’s 2% target, there’s growing expectation that they'll have to take more decisive action soon. A 50-bps cut on October 23rd feels increasingly necessary—anything less would be a missed opportunity to provide real relief the economy desperately needs.
CMHC rule change: borrow more, but pay the price
The new CMHC rules coming into effect on December 15, 2024, feel more like a temporary band-aid than a true solution to affordability. Sure, increasing the insured mortgage cap to $1.5 million and extending amortizations to 30 years boosts borrowing power, but it doesn’t address the core issue: homes are still ridiculously expensive. A 30-year mortgage might lower monthly payments, but it’s a long-term trap, costing buyers around 30% more in interest compared to a 25-year mortgage.
Even with a CMHC premium of roughly $57K on a $1.5M purchase, this route could make sense for some—primarily due to the interest savings from insured vs. non-insured mortgages. The 50bps difference may save you about $60K in interest over 10 years, which offsets the upfront CMHC premium. But let's not pretend this is a win for affordability—it's just a way to keep the gears turning in an increasingly unaffordable market. The real solution? Build more homes.
Anti-competitive stress test: a fix that took far too long
The removal of the stress test for switching lenders is a much-needed change, but it's frustrating that it took this long. For years, it gave an unfair advantage to existing lenders, locking homeowners into higher rates unless they stayed put. This anti-competitive policy stifled choice, and the government really dropped the ball by not addressing it sooner. While the change is welcome, it's hard to ignore the fact that homeowners have been stuck paying more than necessary for far too long.
Average price
The average home price has declined for the third straight month after peaking in May, similar to the trend in 2023. July's average of $1,087,436 dropped to $1,029,069 in August, a 5.37% decrease following a 7.3% decline from June to July. This August figure is the lowest since January, but it's a typical seasonal trend, with prices falling from June to August for 22 consecutive years. Year-over-year, however, the August average is up 2.3% from $1,005,945 in 2023, indicating the market is holding steady.
Average price
$1,029,069 ▲ +2.3% vs a year earlier ($1,005,945)
- 2024
- 2023
- 2022
Average price by type
HPI
The Home Price Index provides an apples to apples comparison of home prices in the city and reflects a more accurate change in prices. According to this metric Toronto home prices are down -5.33% (YoY), detached -4.80% (YoY), semi-detached -3.52% (YoY) and condos down -7.72% (YoY).
MLS® Home Price Index
Sales
In August, there were just 1,718 sales, marking the first time in over a decade that sales dipped below 1,800 for the month. This represents a 13.54% decline from July’s total of 1,987 sales. Year-over-year, sales dropped 9.15% from 1,891 in August 2023. We are now on pace to see the lowest sales figures this millennium, continuing the trend from 2023.
Sales by type
New listings
New listings fell for the third month in a row, as expected for August. There were 4,177 new listings last month, a 31.23% decrease from July's 6,074. While the number of "re-listings" continues to rise, they still count in the overall total. August's numbers closely matched last year, with only a 3.53% drop compared to the 4,330 listings in August 2023.
New listings by type
Active listings
Active listings surpassed 8,500 for the fourth month in a row, a trend we haven’t seen in over ten years. August saw 8,625 active listings, just 8.45% lower than July's 9,421. With new listings likely to rise in September, a sluggish market could bring active listings close to the 8,586 seen in September 2020. In comparison, August 2023 had 5,928 active listings, marking a 45.50% year-over-year increase. As the Bank of Canada made its third rate cut in September, with more expected—including a possible 50 bps cut in October—market conditions should begin to improve for sellers.
Homes for sale by type
The bigger picture
Homes sold every August, 1996 to 2024
Average condo apartment price, by year
Condo prices are back near 2023 levels.
Our thoughts
The market is showing promising signs of recovery, with a noticeable increase in first-time buyers entering the fray. Our listings, along with those of our colleagues, have seen more activity, and calls from potential buyers are on the rise. However, this is likely just the start. If the Bank of Canada delivers a 50-bps rate cut on October 23rd, it could be the shift in sentiment that the market needs. As interest rates continue to decline, paired with the current stable home prices—especially in the condo market—conditions are set to become even more favorable. With prices no longer dropping and significant rate relief expected soon, now could be the perfect time for those sitting on the sidelines to jump in.
For buyers already in the market, choosing a variable rate mortgage could be a smarter move than locking into a fixed rate. While the lower fixed rates, like the 3-year at 4.39%, seem appealing, variable rates—currently at 5.45%—offer more flexibility. As rates are expected to drop, those with variable mortgages could benefit from lower payments every six weeks and have the option to lock into a 5-year fixed at around 3.99% without penalties. Conversely, those who lock into a fixed term now would be stuck with higher rates for the duration unless they pay hefty penalties to break the mortgage. A variable rate offers flexibility in a market where rates are likely to shift in the buyer's favor.
Buyers -> Now is the time to buy—prices have stabilized, and with rate cuts likely coming, a variable mortgage gives you the flexibility to lock in lower rates when they drop. Don’t wait and miss out on this sweet spot in the market.
Sellers -> For sellers, a custom approach is key in this market. We've had success using off-market strategies to test the waters before fully listing, which helped us sell a home in Etobicoke in less than a week for over asking, even in a tough market. This tailored method lets us gauge interest, generate buzz, and fine-tune our strategy for when it officially hits the market—maximizing your chances of a successful sale.
Investors -> With all the new development rule changes, Toronto is easier than ever for newer investors to dive in. Whether it’s adding secondary suites, laneway or garden suites, building additional levels, or redeveloping properties using the MLI Select program, the opportunities are endless. When structured correctly, your investment can offer several ways to add long-term value, while also giving you multiple exit strategies. We’re here to guide you through it all. First step? Let’s grab a coffee and discuss your goals to build a custom strategy.
Source: TRREB. Figures as published in August 2024's data, sent September 27, 2024. Market commentary is general information, not advice for your situation.