Toronto Condo Market Report • April 2022
March was the biggest sales month of 2021 with 15,628 properties being sold. Sales in March 2022 dropped 29.9% to 10,955; even though there was a large drop, this is still very high historically and I expect March to the highest sales month of 2022. While sales were down year-over-year for all major market segments, condo transactions dipped by a much smaller amount, showing greater resilience. Tight market conditions continued to support double-digit price growth with an average selling price of $1.3M (up 18.5% YoY).
I have seen with my own eyes a general slow down and pause in the market over the last month. Things are now happening that I would not believe just a few months ago like getting no bids on offer night, and prices coming down 5% from February. However, quality properties with “wow factor” are still being snatched up in record time - I recently showed a property that was just listed the day before at $1.35M. This house had attention to detail and was one of the nicest finished houses I have seen. It sold in a bully offer for $500k over asking at 11:30PM at night.
However properties that are overpriced or need significant work are starting to sit. The days of anything selling on offer night in multiple bids is over and agents are starting to have to work much harder at preparing and their advertising listings (WHICH IS A GOOD THING!)
This pause in the market is being caused by 3 main factors:
1) Rising Interest Rates: The concern about rising interest rates is real with rates going from 0.25% in January to 1.00% in April as the Bank of Canada (BoC) battles inflation. This is a very delicate balance because if you raise interest rates too quickly, you will trigger a recession and cause a housing market correction, choke off business investment and erode consumer confidence. The BoC needs to appear hawkish on interest rates to help shift market mentality and help end speculation and cool the market which they can mostly achieve with strong language, not by actually taking action (it is a huge win for them). The BoC simply cannot raise interest rates much more quickly than the US does because this will cause the Canadian dollar to increase in value which will have a compounding effect of future interest rate cuts and will result in the Canadian economy being less competitive internationally. The US has already said they are going to be cautious and will raise rates at a much slower pace.
2) Buyer Fatigue: Buyer fatigue is very real and is caused by buyers losing out on bidding wars multiple times (when I bought my home it took me 3 bidding wars - I ended up putting in a bully offer but got into a bidding war of bully offers!) These people will take a “time out” and may return to the market in a few months time. The good news is that while the number of ‘active listings’ is very similar to last year, the slowdown in sales is resulting in the the number of listings available are starting to increase and creating a much more balanced market - I expect this to continue throughout the spring.
3) Confusion over New Government Rules: Both the Federal and Ontario Governments have recently introduced several changes that will affect the real estate marketing, including:
Foreign Buyer Ban
Allowing Disclosure Of Bids (Open Bidding)
Tax on Property Flipping
Taxing Assignment Sales
Support for First Time Buyers
While most are good steps to help slow down the market, none of these measures will materially affect prices or housing affordability - most of these measures were already in place one way or another. The measure that has a small chance of helping is providing $4 billion to create 100,000 new housing units nationally over the next 5 years (20,000 a year). The scary part is that even if all of these units are built in only Toronto, that really just meets the current housing demand and does nothing to address the historic shortfall.
Rental Market
While bidding wars are quickly disappearing in the resale market, they are growing in the rental market, related to several factors:
1) Lower Turnover: Tenants who secured a unit during Covid were able to do so at below market rents and are now mostly protected by rent controls. If they tried to move now, they will be paying significantly higher rents so most will just simply stay put - this reduces the normal turnover rates of units.
2) Post-Secondary Students Returning: For the last year the majority of courses have been provided online. Schools are starting to open up again with in-person teaching and students are returning to the downtown core and need accommodation (did you know Ryerson just changed its name to “Toronto Metropolitan University”)?
3) Not Quite Work-From-Home: Many people moved out of the downtown core, thinking that they can permanently work remotely. By far the most common employment structure emerging is a hybrid model where people must come into the office for at least a few days a week and can work from home for the rest of the time. This means people are again facing horrible commutes and are opting for crash pads downtown (really just a roof over their head to sleep and work at night).
When we look at the ‘active’ or available properties to lease, there is just a one-month supply for all condo sizes and trending lower. Currently, there are 1579 units to lease downtown and in March there were 2,052 units actually leased - this points towards higher rents in the months to come.
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