Toronto’s
spring real estate forecast and its spring weather forecast have one thing in
common: unpredictability.
As we look
ahead to the warmer months, brokers, sellers, buyers, and would-be buyers are
sitting in the sidelines, eagerly watching the Greater Toronto Area (GTA) real
estate market for new signs of life.
But, if
we’ve learned anything in recent years, it’s that the GTA’s ever-dramatic
housing market is a tricky one to predict. With talks of a looming recession
still swirling, a climate of sky-high interest rates, and a stark reality of
low home sales, some headlines inevitably warn of doom and gloom on the real
estate front as we move into 2023.
The figures
don’t lie: GTA home sales were down 44% year over year in January and new home
sales dropped to a 23 year low the same month.
But some
experts say there’s also room for optimism. In their most recent market outlook
report, the Toronto Regional Real Estate Board (TRREB) called 2023 “a year of
two halves.” The 2023 Market Outlook & 2022 Year in Review Report suggests
an uptick in GTA real estate activity in the second half of the year, when
we’ll seen an increase in sales activity, heightened competition among buyers,
and a renewed upward pressure on home prices.
“We start
the year more or less where we were through the fall and winter of 2022, but I
anticipate that, as we move into the second half of the year- and that can
included part of the spring market – that we’ll start to see a greater number
of would-be homebuyers moving off the sidelines,” TRREB’s chief market analyst
Jason Mercer tells STOREYS. “If you think of previous interest rate cycles and
even the onset of the OSFI stress test a few years ago, it takes about a year
or a year and a half for a change in the
interest rate environment to have its full impact on the market. People have to
pull back and think about how they’ll mitigate the impact of higher borrowing
costs. They may took at a different priced house or in a different part of the
GTA, but after a year people have made that decision.”
So. Mercer
says they’ll move back into the marketplace-albeit with a potential
re-evaluation of expectations. “All of the other preconditions for housing
demand are in place,” highlights Mercer. “We have extremely tight market and
we’re seeing the population grow at a record pace – people require a place to
live.”
With that
said, there’s no denying that this spring’s real estate market will look
different than it has in recent years, especially in the wake of the GTA’s
red-hot and record-smashing run that began not long after the term “social
distancing” became a common one in our collective vocabularies.
“Certainly,
we had a record setting year in 2021,” acknowledges Mercer. “In 2022, the
spring market was anything but a pick-up, because we were seeing the initial
impact of higher borrowing costs. I would expect to see more of the seasonal
trends this year – I do expect to see more sales in the spring than we did in
January and February – but sales will definitely be off if you’re looking at it
from a historical perspective in comparison to 2021 and many years over the
past decade or so.”
Certain
areas of the GTA may see more action than others, says Mercer. “One thing we
noticed in our IPSOS consumer polling was that first-time buyers are going to
represent a substantial chunk of intending buyers this year,” says Mercer. “If
you think about the most popular type of homes for first-time buyers, condo apartments
are on top of that list. So, certainly those areas that have a substantial
stock of condos may be of interest to this group. Obviously, the City of
Toronto has many condo developments, but throughout the GTA, there are also
various condo nodes: Mississauga City Centre, Vaughan Metropolitan Centre, etc.”
Mercer
points out that the focus has, understandably, been on the demand side of the
market – a by product of the interest rate hikes – but that the GTA has also
not seen a lot of movement on the supply front.
“So, far the
medium long-term, this is still a major issue for the GTA,” he says. “If we’re
seeing record levels of immigration, and a lot of those people are choosing to
move into the GTA and Greater Horeseshoe, so we need to provide enough housing
in both the rental and the ownership market. IN both cases, over the past
decade, we’ve seen competition among people who need housing. So, just because
we’ve seen a slowdown in the ownership market due to higher borrowing costs, it
doesn’t mean that we take our foot off the gas when it comes to getting more
supply online. All levels of government have committed to addressing the supply
crisis and we need to continue this.”
Despite the
record-low sales that have inevitably kept some realtors up at night, some
industry insiders point to a relentless lack of inventory as a driver to keep
the market competitive in the months ahead. Earlier this month, Johan Pasalis,
President of Realosophy Realty, highlighted that low-rise inventory. According
to Pasalis at the time, these could be signs of a market that is gradually
heating up.
Of course,
low housing inventory usually means that buyers will typically pay more for
homes because the demand for the limited number on the market tends to be
higher. Pasalis was quick to tell STOREYS that he’s not suggesting the market
is remotely close to being as competitive as it was last year, just that it’s
more competitive than it was in the fall.
GTA-based
realtor can confirm that there’s definitely competition in the market. “Surprisingly,
I’m seeing a lot of bidding wars,” Morrison tell STOREYS. “Last nigh, my
clients were offering on a townhouse in North York and it has 19 offers on it.
We thought they’d get it for sure – especially because it was only two bedrooms
– but they lost out. They were only the second highest offer.”
When we
spoke, Morrison said she was about to show a condo downtown earlier in the day,
but got an email from the realtor saying they’d just received a registered
offer.
“So, I feel
that things are picking up right now on the listing side as well as on the
buying side,” says Morrison of what she’s currently seeing in the market. But
she isn’t convinced this trend will continue into the warmer months. “People
always seem to hold out for the spring market, thinking it’s the right time to
list a house,” she says. “I would disagree, because that’s when you could see a
bit of a slowdown because we’re going to have more supply – which is what
everyone’s been looking for – but I think that supply might be enough to
satisfy the few buyers who are out there looking right now. So, while there are
lots of bidding wars right now, I’m not sure that same condition is going to
happen in April or May.”
People will list
their houses, says Morrison, but buyers likely won’t have to deal with the
bidding wars they’re fighting off right now. “I’m crossing my fingers and
hoping the Bank of Canada keeps its promise to pause rates,” says Davelle of the
impact of interest rates on the spring market. The Bank of Canada recently
signalled that is would finally pause its perpetual rate hikes.
“I think my
greatest concern is the rules that OSFI may come out with,” says Morrison of
potentially stricter stress tests by the Office of the Superintendent of Financial
Institutions (OSFI). “In January, they came out to say they’d be doing some
consultations – which would end around the middle of April – and these
consultations would tighten up the mortgage requirements. I don’t know exactly
what’s going to happen, but I feel by the end of the year – maybe it’s summer
or fall – I feel that there will be some tightening, which will make it that
much harder for buyers to enter the market and impact sellers trying to sell.”
On that
note, she advises sellers that now isn’t the time to wait when it comes to
listing their properties. “You’ll most likely get less the linger you wait,”
she says. “There’s a lot of mixed messages in the market right now. You have
the stats of slumping sales and prices but, on the same note, you’ve got
bidding wars. I would say that the housing market is a lot stronger than the
condo market right now. Condos do seem to be sitting on the market a lot
longer, whereas there’s more activity with houses.”
Toronto-based
mortgage broker and real estate commentator Ron Butler notes that there was a “tiny
burst of activity” starting immediately in the new year, with both inquiries
and approvals up. “But that seems to be petering out in the past 10 to 12 days,”
he says. “Of course, there is a direct correlation between mortgage rates and sales
activity. What we experienced in December and January was reductions in
fixed-rate mortgage rates – the two-year, three-year, and five-year options
went down. Obviously, variable went up because it’s always going up. We saw as
low 4.24 five-year fixed. That doesn’t seem very low considering it was 1.99 a
year and a bit ago, but it’s still a lot better than 5.29. We saw a three-year
fixed at 4.68 and it started to create a tiny bit of affordability when the
rates were that low.”
Butler is quick
to point out that “low” is relative. “Low’ is just a function of not being in the
fives – not having a rate that starts with a five,” he says. However, Butler
says that rates have shot back up in the past two weeks. “The three-year rates
have gone up 80 basis points; the five-year has gone up 70 basis points; with
the exception of the CMHC five-year fixed, we’re going to be seeing every rate
in the five percent range again this week,” he says. “So, that’s a major and
meaningful change when it comes to affordability.”
Butler says
that, if this trend continues, the outlook for the spring market isn’t going to
be great. “It won’t be too springy,” he says. “It’s as simple as that.” He says
that nearly half of all GTA listings are terminated.
“We have a
group of people who may want to sell, but want to explore just how much their
house is going to get,” says Butler. “So, they try. But we see many listings
terminated when they discover nobody will pay the price and they withdraw the
listing. Then there’s definitely people who are interested in buying. We see
that when a property is listed that it’s designed for multiple bidding
situations. People are expecting to list their house at $699K and sell it for
$899K. So, you end up with 25 people coming to see the house because they think
there’s a chance that it could sell for the low price. That shows there’s
people interested in buying their first home.”
Conversely,
he says the market doesn’t see similar activity in the $2M + market. “First-time
homebuyers create the bottom of the pyramid of real estate; says Butler. “If they
find it’s not affordable, there just won’t be that much action. It’s very
strange but it’s true that a mortgage that start with a four is just much more
interesting than a mortgage that a mortgage that starts with a four is just
much more interesting than a mortgage that starts with a five. If the fixed
rate mortgage environment continues upward, it will be a very quiet spring.”
Butler calls
the current interest rate climate “slightly chaotic” and highlights Canada’s
susceptibility to the market in the United State (US).
“The Bank od
Canada is committed to a pause in increasing the prime rate; there will be no
rate hike in March,” says Butler. “But
there’s pressure south of the border because the Federal Reserve has become
much more hawkish in the last two weeks. There have been big job reports in the
US, their inflation isn’t falling as fast as ours, and there may be continuous
small increases there. There may be quarter percent increases next month, the
following month, and maybe even again in the summer – and that impacts Canada.
Eventually, if they continue to raise their federal funds rate, that will result
in pressure here to increase rates – both fixed and variable.”
So, we have
to watch job creation numbers and inflation both in the US and in Canada, says
Butler. “In some ways, the US situation is going to start to control the
Canadian situation,” he says.
In the
meantime, while those April showers may be so close we can almost feel them,
whether the spring breathes new life into the GTA real estate market is still
up in the air.
Source By:
STOREYS