With interest rates having peaked, and sales volume declining, more and more prospective homebuyers are beginning to jump into the market. Good deals and reasonably prices are more common in traditionally red hot real estate markets across the GTA and southern Ontario. Toronto’s real estate market has always been a fascinating and dynamic space, renowned for its resilience and adaptability. However, despite the Bank of Canada’s first interest rate cut in a while, the market has shown a decrease in activity, with sales continuing to decline across all property types. Notably, condominiums have experienced a significant 28 percent decrease in sales in June compared to the same period last year. In this article, Tembo will outline the complexities of the current market, the implications of the recent rate cut, and the potential opportunities for buyers in the near future.
Toronto’s real estate market has a rich history characterized by periods of rapid growth and the occasional ‘pause’ for breath, where activity slows down. Over the past few decades, the city has experienced remarkable expansion, driven by a robust economy, an influx of immigrants, and a thriving diversified economy and surging tech sector. Property values have steadily increased, making Toronto one of the most sought-after real estate markets in North America.
In the early 2000s, the city saw a construction boom, particularly in the condominium sector. High-rise buildings transformed the skyline, offering modern living spaces to a growing urban population. This period also saw significant foreign investment, further boosting the market. However, with rapid growth came challenges, including affordability concerns and market volatility.
The recent interest rate cut by the Bank of Canada, has not yet revitalized the market as expected. Many potential buyers are adopting a wait-and-see approach, anticipating further rate cuts before making a purchase. This makes perfect sense, why buy now when rates could be significantly lower in a year or so? It’s not a lack of fundamentals that’s underpinning the slowdown, it’s caution, and that’s a good thing. This cautious behavior has resulted in reduced demand, despite an increase in new listings. According to the latest report from the Toronto Regional Real Estate Board (TRREB), new listings have surged by 12 percent year over year, keeping the market well-supplied. So for those who have waited for years to jump in, now is a good time to consider making bids, because if rates fall more activity will pick up fast.
Jennifer Pearce, President of TRREB, highlighted the mixed impact of the rate cut: “The Bank of Canada’s rate cut last month provided some initial relief for homeowners and homebuyers. However, the June sales results suggest that most homebuyers will require multiple rate cuts before they move off the sidelines.” An Ipsos poll conducted for TRREB supports this, indicating that cumulative rate cuts of 100 basis points or more are necessary to significantly boost home sales.
On June 5, the Bank of Canada cut the overnight rate by 0.25 percentage points. Economists predict that any further rate cuts will be gradual, with potentially one or two more by the end of 2024. This measured approach aims to balance stimulating economic activity with maintaining financial stability.
Condos are particularly cold right now
The decline in sales and prices has been observed across all property types in Toronto and the Greater Toronto Area (GTA). Condominiums have faced the sharpest drop, with sales down 28 percent in June compared to the same period last year. Townhouses have also seen a decline of 14 percent, followed by semi-detached homes at 11.4 percent and detached homes at 10.6 percent.
Price reductions have also been significant across the board. Semi-detached homes have experienced the greatest decline at 9.3 percent, followed by townhouses at 4.9 percent, detached homes at 3.3 percent, and condos at 1.5 percent. Jason Mercer, TRREB’s Chief Market Analyst, emphasized the challenges faced by condos, often the entry-point for first-time buyers: “Condos are typically entry-point homes for first-time homebuyers. While many are close to purchasing their first home, they need to see more relief on the interest rate front.”
The condo market has become particularly stagnant, with over-leveraged investors attempting to offload properties while end users show little interest in expensive, small units unsuitable for families. This situation has led to a significant rise in active listings, which are up 67.4 percent year over year. Buyers currently enjoy substantial choice and negotiating power, with a sales to new listings ratio of 34.5 percent, indicating a buyer’s market.
Mercer explained the current buyer’s advantage: “Currently, buyers are benefitting from substantial choice and negotiating power on price. As sales pick up alongside lower borrowing costs, elevated inventory levels will help mitigate against a quick run-up in selling prices.”
Despite the current market challenges, there are several reasons for optimism. The TRREB forecasts that home prices will reach $1.17 million by the end of the year, with the average home price in June at $1.16 million. This indicates a stable market poised for gradual growth.
Mercer remains hopeful about the future: “There won’t be an instantaneous upward pressure on prices. Looking forward, buyers will take advantage of the lower prices compared to the 2021 and 2022 market, as well as lower borrowing costs, which will be important factors heading into 2025.”
For potential buyers, the current market conditions offer unique opportunities. The significant choice in properties and the negotiating power available can lead to favuorable deals. As borrowing costs are anticipated to decrease further, the affordability of homes is likely to improve, making it an opportune time for first-time buyers to enter the market.
For Tembo, understanding these market dynamics is crucial for strategic planning. The increased inventory and buyer’s market conditions present an excellent opportunity to offer competitive mortgage products tailored to investors looking to capitalize on the lower prices and favourable financing conditions. By providing flexible and attractive mortgage options, Tembo can play a pivotal role in helping you navigate the current market landscape. Please call us at 1-844-238-6717 or visit www.tembofinancial.com to discuss how we can help you navigate the opportunities in this market through our mortgage loans, bridge financing, reno loans, and credit consolidation loans!
Toronto’s real estate market, despite its current challenges, continues to be a resilient and dynamic environment. The recent interest rate cut by the Bank of Canada has yet to fully stimulate the market, but gradual improvements are anticipated. With increased inventory and favorable conditions for buyers, there is significant potential for growth in the near future.
For buyers and investors, understanding these market trends and leveraging the current opportunities can lead to successful real estate ventures. As the city continues to evolve, so too does its real estate landscape, offering new possibilities and opportunities for those ready to seize them.