The Review · Vol 07/24 · June 2024
How low can the BoC go? The market's waiting for a spark!
Written by Pawel Parafianowicz, Founder | Broker, Coral Realty Group ·
Can you believe it’s already halfway through the year? The first six months of 2024 have been a rollercoaster for Toronto's real estate market. We started the year in a strong seller's market, with competitive offer nights and multiple bids driving activity.
However, by June, things had shifted dramatically. Inventory levels rose, and the success of offer dates declined, leading to more re-listings and necessary price adjustments. The market's landscape has truly evolved, presenting new challenges and opportunities.
With the Bank of Canada (BoC) just announcing the second 25 bps rate cut, the question arises: how low will they have to go before the real estate market is reignited? And why make a second cut with June inflation above 2.5%?
It reminds me of the joke my stats professor loved: "A statistician drowned crossing a river that was, on average, three feet deep."
In April, StatsCan reported inflation at 2.7%, which rose to 2.9% in May before falling back to 2.7% in June.
However, few noticed that StatsCan adjusted the weight of mortgage interest in the inflation basket from 3.5% to 5.2%. This change, while seemingly minor, has a significant impact.
When mortgage interest is excluded (largely controlled by the BoC), May's inflation rate was actually 1.6%, and June's was 1.4%.
See more below…
Buyer's or seller's market?
4.3 months of inventory: a buyer's market.
- Seller's under 2
- Balanced 2–3.5
- Buyer's 3.5–5
- Extreme buyer's 5+
Every June, months of inventory
Average price
Average home prices saw a slight decline month-over-month for the first time this year, dipping by 1.6% from $1,193,202 in May to $1,173,781 in June. Year-over-year, however, the average price is up by 1.85% from $1,152,424 in June 2023. While we can't call these prices completely flat, they are certainly maintaining a steady pace compared to last year.
Average price
$1,173,781 ▲ +1.9% vs a year earlier ($1,152,424)
- 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 -5.47% (YoY), detached -4.23% (YoY), semi-detached -3.14% (YoY) and condos down -7.28% (YoY).
MLS® Home Price Index
Sales
Sales saw their first drop this year, declining from 2,701 in May to 2,236 in June, a 17.2% decrease. This June figure is the lowest for any June since before 2000, continuing the trend seen in April and May. Despite the low sales numbers, prices have not significantly declined. Year-over-year, sales fell 21%, from 2,833 to 2,236, and we're on track for fewer sales in 2024 than in 2023. This is truly surprising for any market.
Sales by type
New listings
New listings in June were surprisingly lower than in May, despite many re-listed properties due to unsuccessful offer nights. June saw 6,820 new listings, a 7.3% decrease from May's 7,360. This decline helps prevent further accumulation of unsold inventory. Year-over-year, new listings rose by 17.8%, from 5,789 in June 2023 to 6,820 this past month. Despite a drop in the absorption rate, signaling a buyer's market, prices remain steady.
New listings by type
Active listings
Active listings have increased every month in 2024. In June, there were 9,623 active listings, up 6.6% from May's 9,029. Year-over-year, June's listings were 74.3% higher than the 5,521 in June 2023, though this increase is slightly down from the 82.4% rise seen in May. This could indicate that inventory levels might be stabilizing.
Homes for sale by type
The bigger picture
Homes sold every June, 1996 to 2024
Average condo apartment price, by year
Our thoughts
This is just the beginning. Inflation is weakening, but job losses are piling up in transportation, wholesale, and the crucial construction industry, which has faced three straight months of declines. With most new jobs being part-time, the economic pressures are significant.
Given these trends, it's likely we’ll see rate cuts at every remaining Bank of Canada meeting this year. For the BoC, large job losses pose a greater risk than higher inflation.
Today's rate cut might not significantly impact affordability, reducing monthly payments by about $16 per $100,000 mortgage. However, with the media buzz around this cut and expectations of future rate cuts, we might see a shift in sentiment. The potential for property appreciation over the next few years could outweigh the temporary pain of higher payments.
So, how low does the BoC need to go to reignite the market? In peak summer, we might not see immediate changes, but a potential third rate cut on September 4th could shift the market towards balance as people return from vacation.
In the freehold market, currently balanced, we could see things heat up. Offer nights might return in September.
However, we don't anticipate a strong seller's market, especially in condos. Renewing mortgages, lower rents, and negative cash flow will pressure investors to liquidate.
There's also talk about OSFI loosening the stress test in December, but their focus remains on protecting against inflation spikes rather than easing borrowing.
Stay tuned for next month’s report, where we'll share our fall market predictions.
Buyers -> Historically, market downturns have proven to be excellent entry points. With a 2-5 year investment horizon, this period of reduced demand might be the perfect time to buy, especially as the Bank of Canada has started its cycle of lowering interest rates.
Sellers -> Freehold sellers may find that selling their homes takes longer than in previous market conditions. With expected lower activity during the prime summer months, we recommend a sell-first, buy-second strategy to ensure you're covered.
Condo sellers, we are currently at 6+ months of inventory and growing. The only way to sell in this market is with an aggressive pricing strategy and staging. Make your unit stand out among the numerous options available to the few buyers looking. With high active inventory, we might start seeing falling condo prices.
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 June 2024's data, sent July 24, 2024. Market commentary is general information, not advice for your situation.