The Review · Vol 03/24 · February 2024
What’s hot, & what’s not… in Toronto’s R.E. market?
Written by Pawel Parafianowicz, Founder | Broker, Coral Realty Group ·
Around mid-January, we noticed a revitalized energy and enthusiasm in the real estate market, following a quieter period in December and early January. Now, two and a half months into the year, we're seeing a familiar pattern of activity and demand similar to the beginning of 2023. As often discussed, the Toronto real estate market presents a dual narrative: freeholds (the hot) and condos (the cold).
The anticipation of interest rate reductions has prompted buyers to re-engage with the market, across both freehold and condo segments. Consequently, there has been an uptick in new listings and sales across all property categories.
Interest in freehold properties has resurged, especially for updated homes priced below $1.5 million. Semi-detached homes, with an average price of $1.3 million, offer an appealing entry point and have experienced a 10% month-over-month increase and a 3% year-over-year increase in sales.
However, the pace of sales growth in the condo market is not keeping pace with the influx of new supply. Elevated interest rates are prompting investors to offload their investment condos to mitigate negative monthly carrying costs, which can range from -$1,000 to -$2,000 per month.
Make sure to read our thoughts below!
Buyer's or seller's market?
2.6 months of inventory: a balanced market.
- Seller's under 2
- Balanced 2–3.5
- Buyer's 3.5–5
- Extreme buyer's 5+
Every February, months of inventory
Average price
In February, we witnessed a significant uptick in the average price, rising by 11.73% from $959,842 in January to $1,072,528 in February. This trend mirrors the pattern seen in 2023, where average prices climbed from $987,842 to $1,071,043. Similar to the previous year, we observed a noticeable slowdown in December and January, with activity picking up towards the end of January. Year over year, our performance remains stable with a marginal increase of 0.14%.
As a result of higher interest rates, investors have not yet returned to the condo market, leading to a slight 0.23% year-over-year decrease in prices despite a 2.42% month-over-month increase. The current average price of $726,608 aligns with the February 2020 average price of $722,675. First-time homebuyers are seizing the opportunities presented by this market scenario.
Average price
$1,072,528 ▲ +0.1% vs a year earlier ($1,071,043)
- 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 -0.58% (YoY), detached +1.17% (YoY), semi-detached +1.54% (YoY) and condos down -2.55% (YoY).
MLS® Home Price Index
Sales
In February, we witnessed a significant 33.9% surge in sales compared to January. This follows a notable 16.27% increase from December to January, and we anticipate further growth in sales through March, April, and possibly May, before a slight decline in June. However, it's essential to highlight that despite reaching 1,971 sales in February, this figure remains well below the five-year average for February, which stands at 2,616 units.
Condo sales showed an increase both month over month and year over year, although we are still approximately 33% below the five-year average. We anticipate a significant spike in condo sales once interest rates are finally reduced.
Sales by type
New listings
We had anticipated an increase in new listings from January to February, coming in at 25.7% month over month. Even compared to the previous year, there was a notable rise of 31.2%. Last February saw 3,314 new listings, whereas this February recorded 4,347. This surge in new listings is primarily driven by new condo listings, which have increased by 32.5% year-over-year. In contrast, both detached and semi listings are up 25%.
New listings by type
Active listings
Active listings provide a clear insight into market dynamics, revealing what's in demand and what's not. A surge of 55% in new listings for detached homes and 51% for semis from January to February, has led to month over month active listings increase of 9.2% for detached homes and 7.3% for semis, displaying a small level of softening in February. However, there has been a significant decrease of active listings year over year of -14.5% for detached homes and -31.5% for semi’s. This shortage of freehold inventory compared to demand is evident, impacting those currently searching for properties.
The condo market experienced a 11% increase in active listings month over month, alongside a 13% spike in new listings. This indicates a return of interest to the condo market, particularly among first-time buyers. However, active listings remain up by 35% year over year, with 3,572 active listings this month, far surpassing the five-year average of 1,747.
Homes for sale by type
The bigger picture
Homes sold every February, 1996 to 2024
Average condo apartment price, by year
Condo prices are back near 2021 levels.
Our thoughts
Understanding the demographics of buyers is crucial in predicting the market's direction. Freehold buyers are mainly end users, while over 40% of condo buyers are investors.
Despite higher interest rates affecting both groups, freehold buyers adapt by shifting their preferences within different price ranges as life circumstances change. For example, those initially considering an upgraded detached home in the $1.8-2 million range may now be looking for a more entry-level detached home in a different area for $1.4 - 1.5 million. Similarly, buyers who were initially searching for an entry-level detached home at $1.4-1.5 million might now be considering an entry-level semi-detached home in the $1.1 - 1.3 million range.
Conversely, the condo market sees less movement due to narrower price spreads. For instance, potential buyers who were considering a two-bedroom condo may already be in a one-bedroom unit or renting a one-bedroom while waiting for prices to adjust. Similarly, those considering a one-bedroom condo may be temporarily holding off instead of opting for a bachelor unit.
Additionally, investors experiencing significantly negative cash flow are choosing not to buy and are opting to sell instead.
We anticipate that interest rate reductions will particularly benefit the condo market, leading to potential price increases. With the GTA population projected to grow from 7.1 million people in 2021 to 10.5 million by 2046, and housing supply not keeping pace, reduced rates could attract both investors and end users back to the condo market.
The timing and extent of interest rate changes are key considerations. Those entering the market before rate reductions can expect noticeable equity growth in the coming years.
Buyers -> Anticipated interest rate reductions this year are poised to fuel a notable increase in demand, triggering price rises in both the freehold and condo markets once the Bank of Canada takes action. Don’t wait for the Bank of Canada to make their move first.
Sellers -> Freehold properties are generating multiple offers, indicating a shortage of inventory in the market. If you're considering upsizing or downsizing, now presents an opportune moment to make a move and find your ideal home. However, for condo sellers who are not under immediate pressure to sell, it may be advisable to wait for potential interest rate reductions before listing their properties.
Investors -> 4-plex properties are now legally permitted throughout the city, and certain properties may even qualify for the addition of laneway or garden suites. If you have an interest in exploring these options, please don't hesitate to get in touch with us. We're here to assist and provide further information.
Source: TRREB. Figures as published in February 2024's data, sent March 19, 2024. Market commentary is general information, not advice for your situation.