Toronto and GTA Markets in July 2022

This is the recently released report of the Toronto Regional Real Estate Board concerning the July 2022 results:

“August 4, 2022 – There were 4,912 home sales reported through the Toronto Regional Real Estate Board (TRREB) MLS® System in July 2022 – down by 47 per cent compared to July 2021. Following the regular seasonal trend, sales were also down compared to June. New listings also declined on a year-over-year basis in July, albeit down by a more moderate four per cent. The expectation is that the trend for new listings will continue to follow the trend for sales, as we move through the second half of 2022 and into 2023.

Market conditions remained much more balanced in July 2022 compared to a year earlier. As buyers continued to benefit from more choice, the annual rate of price growth has moderated. The MLS® Home Price Index (HPI) Composite Benchmark was up by 12.9 per cent year-over-year. The average selling price was up by 1.2 per cent compared to July 2021 to $1,074,754. Less expensive home types, including condo apartments, experienced stronger rates of price growth as more buyers turned to these segments to help mitigate the impact of higher borrowing costs.

“The Greater Toronto Area (GTA) population continues to grow and tight labour market conditions will drive this growth moving forward. Despite more balanced market conditions resulting from rapidly increasing mortgage rates, policymakers must continue to take action to boost housing supply to account for long-term population growth. TRREB has put realistic solutions on the table to address the existing housing affordability challenges. With savings high and the unemployment rate still low, home buyers will eventually account for higher borrowing costs. When they do, we want to have an adequate pipeline of supply in place or market conditions will tighten up again,”

said TRREB Chief Market Analyst Jason Mercer.

TRREB is also calling on all levels of government to reassess and clarify policies related to mortgage lending and housing development.

“Many GTA households intend on purchasing a home in the future, but there is currently uncertainty about where the market is headed. Policymakers could help allay some of this uncertainty. As higher borrowing costs impact housing markets, TRREB maintains that the OSFI mortgage stress test should be reviewed in the current environment,”

                              said TRREB CEO John DiMichele.

“With significant increases to lending rates in a short period, there has been a shift in consumer sentiment, not market fundamentals. The federal government has a responsibility to not only maintain confidence in the financial system, but to instill confidence in homeowners that they will be able to stay in their homes despite rising mortgage costs. Longer mortgage amortization periods of up to 40 years on renewals and switches should be explored,”

said TRREB President Kevin Crigger.”

TRREB always compares things to exactly one year ago. Sometimes that provides rather odd comparisons. That’s why I don’t do that, in this report.

REVIEW

Here are the average sale prices as reported by TRREB for single family homes of all types in the GTA, including houses, townhouses and apartments starting at the beginning of 2018 until now:

Average Prices    Month
 

2018
 

$734,837              January 1st

$735,874              January 31st

$767,801              February    

$784,514              March

$804,926              April

$803,440              May

$808,066              June

$781,918              July

$765,252              August

$796,814              September

$807,538              October

$787,741              November

$749,019              December

2019
 

$749,019               January 1st

$747,175              January 31st

$779,791              February

$788,133              March

$820,373              April

$838,248              May

$831,882              June

$806,971              July

$792,134              August

$842,421              September

$851,877              October

$843,307              November

$838,662              December

2020

$838,662              January 1st

$838,087              January 31st

$910,068              February

$902,788              March

$820,226              April

$863,563              May

$931,131              June

$943,594              July

$951,219              August

$960,613              September

$968,535              October

$955,889              November  

$932,297              December

2021

$932,297              January 1st

$966,068              January 31st

$1,044,910           February

$1,097,319           March        

$1,090,414           April

$1,108,124           May

$1,088,991           June

$1,061,724           July

$1,070,201            August                   

$1,135,027           September

$1,155,603           October

$1,162,488           November

$1,157,861           December

2022

$1,157,861           January 1st

$1,242,147           January 31st

$1,334,064           February

$1,299,361           March

$1,254,083           April

$1,212,074           May

$1,145,994           June

$1,074,754           July

For those following these numbers on a monthly basis, please note that some of the recent sales numbers in 2021 and 2022 have had to be restated. A few transactions may have fallen through and not closed as originally scheduled. Consequently, TRREB deletes them and re-enters them in the proper month. That will throw the average prices off by a few hundred dollars if you are looking back at previous monthly reports for consistency. Changes are more likely for the most recent months.

You will notice that the market is now at $1,074,754, which is now $259,310 below the all time peak of $1,334,064 achieved in February 2022, and closely approximates the values in July 2021.

What usually happens each year? The market starts off in January, rises in February, gains momentum in March and April and reaches its peak for the year in May. The market declines in June, declines in July and then bottoms out in August. In September, it reverses itself and rises once again, and in October, it reaches its second peak for the year. In November, the market declines, as it does again in December, and the cycle repeats itself the following year.

For 2022, we were off to a fairly predictable start. The market got going in January, and rose again in February. The surprise was a slight dip in March. Then, we faced further declines in April and May which should have been the top of the market for the year. The decline in June is actually predicable, as is the decline in July and we should ordinarily expect further slight decline in August, before we see some upward momentum in September. But, who knows! Maybe, only the Bank of Canada!

Why is this? What does this mean? Could we have a major fall like we experienced in 2017? Overall, that was just under a 20% decline from April to August. This year from February to June, we have seen a 19.44%  decline. That’s across the board. Some areas and some segments of the market are higher and lower than that.

Let’s undertake an analysis with respect to the rates of return achieved over the last several years. The purpose of this calculation is to smooth out the returns over a longer time period to produce more accurate results. This avoids the rise and fall in a month or two and notably the reference to the exact same month a year ago, which may not be a particularly relevant calculation. You will notice that TRREB refers back 12 full months for comparison purposes. The results should always look reasonably good, because after all, that was a year ago. As you go forward, there should always be good news to report. On the other hand, you would clearly see the ups and downs of the market if you looked at the monthly results. Hence, this report provides you with all those numbers.

The market has declined substantially a few times. Within the last three decades, there are three examples: 1990, 2008 and 2017. The first two are largely historical now.

We will start with 2017 which was a year with a peak in the market and the sudden drop.

2017 started with $730,472 and we are now at $1,074,754, that’s an increase of $344,282 which is a 47.13% increase over the sixty seven (67) month period. Expressed over 12 months, that’s an 8.44% annual increase.

2018 started with $734,837 and we are now at $1,074,754, that’s an increase of $339,917, which is a 46.26% increase over the fifty five (55) month period. Expressed over 12 months, that’s a 10.09% annual increase.

2019 started with $749,019 and we are now at $1,074,754, that’s an increase of $325,735, which is a 43.49% increase over the forty three (43) month period. Expressed over 12 months, that’s a 12.14% annual increase.

2020 started with $838,662 and we are now at $1,074,754, that’s an increase of $236,092, which is a 28.15% increase over the thirty one (31) month period. Expressed over 12 months, that’s a 10.90% annual increase.

2021 started with $932,297 and we are now at $1,074,754, that’s an increase of $151,457, which is a 16.40% increase over the nineteen (19) month period. Expressed over 12 months, that’s a 10.36% annual increase

So, what’s the percentage rate of increase to the end of July?   

From 2017              8.44%                calculated

From 2018             10.09%               calculated

From 2019             12.14%                calculated   

From 2020             10.90%                calculated 

From 2021           10.36%                 calculated

The most accurate number here is the 8.44% annual increase from the beginning of 2017. It’s the longest time period, and is therefore the most steady and accurate. Historically, over one thousand years of history we have seen increases of over 5% per annum. So, this is certainly not new! Typically, for the GTA we might expect 6.5% annually in terms of increases. This is a fairly consistent pattern. Right now, we are still substantially more than that.

We do run into a substantial difficulty with many buyers from 2017. If you bought in April 2017 at the peak, you paid $919,614. That property is now worth $1,074,754, that’s an increase of $155,140 which is a 16.87% increase over the sixty three (63) month period. Expressed over 12 months, that’s a 3.21% annual increase. You can appreciate what a significant difference is made by using a different starting point for the purposes of the calculation. Just four months, and we either have 8.44% (January) or 3.21% (April).

It does speak to the decision for those who faced closing in 2017 after paying the high prices. They actually broke even in June 2020, while those who failed to complete have suffered substantial losses, with no property at all to show for it. In some cases, they lost hundreds of thousands of dollars. They are now ahead of just having their money sit in the bank. The message is clear: if you can close, do so, and hold on, because at some point the market will reward you. Those who closed have now achieved a positive rate of return. Those who failed to close have simply lost all of their money, without anything today to show for it.        

Volume of Sales

Here are the sales over the last number of years. It’s important to be aware that potentially, there is a great deal of interest. It was only when the market skyrocketed and then plunged in 2017, that many prospective purchasers were frightened to participate. To a certain extent they have returned but there is very limited supply. That make it a “super-sellers’ market”. As more and more inventory arrives, the market is likely to transition, but in all probability it will remain a “sellers’ market” until the end of 2022, and for several years to come until we have substantial inventory.

Despite recent media commentary indicating that it has become a buyers’ market, there are really no statistics to support that. Prices have come down, but you must appreciate that they rose very quickly, and this might not be anything more than a rationalization. Also, we have just seen interest rates increase. Since most buyers in the market require financing, this restricts their total buying power.

Here are the traditional yearly sales:

2015                     101,214

2016                     113,040

2017                     92,340

2018                     78,018

2019                     87,750

2020                     95,066

2021                     121,712

Here are the current monthly sales:

2022

January       5,598         

February      9,044

March         10,902

April           7,974

May            7,273

June            6,474

July             4,912

Total           52,177

2021

January       6,888

February     10,929

March         15,628

April           13,613

May            11,903

June            11,053

July             9,339

Total           79,348

We are down quite a bit from last year. We are short 27,171 transactions compared to last year. The buyers are still there, they are just on the sidelines. Also, they don’t have quite as much money as they had this time last year due to interest rates.

To a certain extent, we are witnessing a repeat of the 2017 market. We see Buyers who overpaid in February and March seeing that their own homes didn’t sell for what they expected and the purchased property doesn’t appraise successfully. This may force them into default over the next several months.

In early February, we would often see 20 bidders per house; that dropped in half, and now a bidding war would be rare. Also, we see many properties listed, taken down off the market, and relisted since they did not receive any Offers whatsoever on their scheduled offer date.

It’s important to appreciate that we will not see a balanced market until we see about 5 months’ worth of inventory on hand. Right now, we are at 15,334 listings and currently selling at the rate of 7,454 per month, so that’s just slightly more than two months’ inventory. Fundamentally, that still means that it’s a Seller’s market.

Supply is the issue. Delays by municipalities with respect to development are the problem. It takes 7 years to develop property in Ontario, but only 7 months in Texas. They must be much quicker with the paperwork!

Notwithstanding all the political comments about the shortage of inventory, municipalities increased their development charges in June. For the City of Toronto these increases were 49% across all types of properties. For singles and semis, this went from $93,978 to $139,830 or an extra $45,858 which will be passed on to the Buyers. Higher prices and fewer deals will force some of the developers to put their projects on the shelf.

COMMENT

Some market trends that we have been seeing:

  • Increase in the demand for cottages,
  • Increase in demand for properties with backyards (semis and detached)
  • Increase in demand for properties in the suburbs and outlying areas
  • Toronto based families looking to relocate to the 905 and 519 areas
  • 905 based families looking to relocate to 519, 705 and 613 areas
  • Baby boomers staying in place rather than downsizing
  • Renewed interest in downtown condos
  • Families who temporarily relocated out of Toronto during Covid, returning

It’s impossible to predict the future, but we can certainly observe the current trends in the marketplace to give us some guidance.

Predictions

It looks like the impact of Covid is over, at least when it comes to residential real estate. All properties in Ontario have become more valuable. More and more individuals will work from home. Commuting times and traffic had become quite onerous. Recently, we have seen a substantial increase in gas prices which should result in many consumers turning to electric vehicles. That transition could easily take more than a decade.

Commercial offices have been in a transition. At first, employees were reluctant to return to work, but now, they just need more space. So far, there has not been that much of an impact. Retail spaces seem to be recovering somewhat, but for the last two years the consumer has been forced to resort to the internet, and has become quite accustomed to the practice.

If you would like to discuss the market, please give me a call at 647-404-8150.

Brian Madigan LL.B., Broker

www.iSourceRealEstate.com

www.OntarioRealEstateSource.com

Leave a Reply

Your email address will not be published.