The Review · Vol 03/23 · March 2023
Did you blink? Because if you did…
Written by Pawel Parafianowicz, Founder | Broker, Coral Realty Group ·
Did you blink? Because if you did, you might have missed how quickly the real estate market in Toronto has shifted over the last two months, with a notable increase in buyer activity and a concerning lack of inventory for sale. From January 1st to the end of March, the market experienced a dramatic decrease in months of inventory from 3.5 months to a low of 1.70 months. This metric represents the speed at which the market would consume current inventory should no new listings emerge.
It is worth noting that the market would have seen higher overall sales volume in March had more listings become available. However, this shortage of inventory underscores the challenges faced by buyers seeking desirable properties in this competitive market.
Fortunately, the Bank of Canada's decision to halt interest rate hikes two months ago has provided the market with much-needed stability. The renewed interest in real estate has led to offer nights becoming a common occurrence in the core and expanding to the 905 area and even some condos.
Make sure to read our key takeaways below!
Buyer's or seller's market?
1.7 months of inventory: a seller's market.
- Seller's under 2
- Balanced 2–3.5
- Buyer's 3.5–5
- Extreme buyer's 5+
Every March, months of inventory
Average prices
Average price decreased on a month-over-month basis by -1.5%, moving from $1,071,043 in February to $1,054,563 in March. For those actively looking in the market, you know this couldn’t be further from the truth, and we have seen closer to a 5% increase in prices month-to-month in certain areas for similar units. The luxury market doesn’t start moving until May and June, and the small sample size is artificially pulling prices down. Year-over-year, we saw a -11.5% decline in February and that has increased to -13.5%. Look for that gap to narrow with every successive month until we’re actually up on a year-over-year basis this fall, which we see happening as early as July.
Average price
$1,054,563 ▼ −13.5% vs a year earlier ($1,218,546)
- 2023
- 2022
- 2021
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 -19.3% (YoY), detached -11.5% (YoY), semi-detached -12.8% (YoY) and condos down -9.5% (YoY).
MLS® Home Price Index
Sales
Sales are heating up! For the second month in a row, we're seeing significant increases in sales. However, we could have had even more sales if there were more listings available. In March, we saw a month-over-month increase of 44.5%, with 2,521 sales compared to 1,745 in February. While year-over-year sales were down -36.7% from last year's 3,981, that's an improvement from the -46.1% drop we saw in February. All signs point to an active and competitive market.
Sales by type
New listings
Inventory is still a major challenge in the market. Although we saw a 30.3% increase in new listings from February to March, with 4,318 listings in March, it's important to note that this was actually the lowest number of new listings ever recorded for a March. Year-over-year, new listings are down -33.9%, which is a big drop from the 6,537 recorded in March of 2022. It's frustrating for both buyers and sellers that there just isn't enough inventory to meet demand. Many property owners want to sell, but they're hesitant because they need to find a new place to live first. And with so few options on the market, it can be a self-defeating cycle.
New listings by type
Active listings
On a month-over-month basis, there was a 4.4% increase in active listings, indicating a slightly slower absorption rate of inventory. As of the end of March, there were 4,292 active listings compared to 4,110 in February. It's surprising to note that detached and semi-detached properties saw a year-over-year decline in active listings of -9.58% and -11.9%, respectively. This suggests that the market for freeholds may be even tighter than it was in March 2022!
Homes for sale by type
The bigger picture
Homes sold every March, 1996 to 2023
Average condo apartment price, by year
Condo prices are back near 2021 levels.
Our thoughts
We would like to draw your attention to three key takeaways:
1. The monthly stats are a lagging indicator
As active full-time agents in the market, we have observed time and again that statistics are often a delayed indication of what is truly happening in the market. The month of March is a prime example of this phenomenon. After the Bank of Canada declared a freeze on further interest rate hikes, we began receiving inquiries from buyers who were eager to start their search. Our colleagues and our own experiences confirm that this trend has only accelerated since then.
It is worth noting that when buyers start searching for properties, it usually takes them between one and three months of actively viewing properties to become familiar with the market and available products, and feel confident enough to submit an offer. This point is crucial. Although there has been an influx of new buyers over the last month who are still getting familiar with the market, they may not be submitting offers on properties yet. As a result, this activity is not reflected in the statistics. This is why it is essential to work with a full-time boots-on-the-ground agent who can provide insight into where the market is headed.
2. Understand the market you are entering
It is vital to acknowledge that the market has shifted to a seller's market. The strategies and tactics that were effective in the fall market or even in January may no longer work in today's market. Buyers are entering the market today with the expectation of being able to lowball listings and not have to compete in offers. The market has shifted quickly, and to succeed in buying a property today, you may need to change your mindset and approach.
3. Temporarily elevated interest rates are acting as a cap on accelerated appreciation
Despite an increase in buyer activity and prices, we do not anticipate runaway pricing in the near future as elevated interest rates are capping the market's acceleration. The markets now expect a decrease in rates to begin as early as the latter half of this year or early next year, following the collapse of the Silicon Valley Bank. Once rates begin to decline, we can anticipate the floodgates on pricing to open.
Quick tip: There is still an opportunity to buy when there is less competition. April is tax season in the finance world, and many professionals put their home search on hold in the latter half of the month. This provides a small window of opportunity to purchase with less competition!
Buyers -> The market is pricing in lower rates towards the latter half of this year or early next year. Buying today at a lower price with a one or two year fixed rate, although at an elevated level is a worthwhile investment to lock in a lower price, and refinance in 2 years when rates are lower.
Sellers -> Those looking to upsize, the margin between the average price of a condo and that of a freehold property has decreased significantly. Lenders typically permit you to port your mortgage and obtain a blended rate. This strategy enables you to effectively cheat the system, buying at a low price and a reduced rate.
Investors -> An increase in inventory levels coupled with a decrease in buyer demand has created a favorable environment for identifying investment opportunities with promising returns. In accordance with the astute advice of Warren Buffett, "be fearful when others are greedy and greedy when others are fearful."
Source: TRREB. Figures as published in March 2023's data, sent April 10, 2023. Market commentary is general information, not advice for your situation.