Examining the data closely reveals an uneven performance in the market for low-rise houses and condos across the five regions of the Greater Toronto Area (GTA). Similar to the varied performance of housing markets across Canada, as discussed in a recent interview with BMO's Robert Kavcic, different regions and types of houses within a metropolitan area also exhibit diverse trends.

In this month's data analysis, we will delve into how the market for low-rise houses and condos is faring across the GTA's five regions. The chart below illustrates the year-over-year change in sales for October 2023.

Notably, condos in Peel experienced the most significant decline in sales, just under 20%, followed by houses in the Halton region with an 11% decrease. In contrast, condos in York are the only house type that has witnessed an increase in sales compared to last year.

A noteworthy observation is that most regions and house types saw sales volumes fluctuate within 5% of last year's levels. While the GTA experienced relatively soft sales last year, the substantial difference between this year and the last lies in the change in the number of homes available for sale or active listings.

Active listings across the GTA have surged by over 50% for all house types and regions, excluding a 38% decline in Halton condos. Suburban houses have witnessed the steepest increase in active listings, followed by condos in the City of Toronto. 

However, to comprehend the market balance in each area, it's crucial to examine the months of inventory (MOI).

Despite Durham's houses seeing the most significant increase in active listings, it also boasts the lowest MOI, suggesting a more balanced and competitive market compared to other regions and house types.

Across all five regions, the condo market has a higher MOI than the house market, with the City of Toronto exhibiting the most significant difference between house types. Houses have a 3.4 MOI compared to condos at 5.8 MOI, indicating a slower condo market.

There is substantial variability in the MOI for houses across GTA municipalities. The chart below illustrates the October MOI for houses in each municipality. Far-reaching areas of the GTA, such as King, Caledon, Georgina, and East Gwillimbury, show a high MOI of 7 to 8, while areas closer to Toronto's east-end suburbs, including Oshawa, Whitby, Clarington, Ajax, and Markham, have around 3 MOI.

Considering how prices have changed over the last year, it's essential to note that GTA prices have been trending downward for the past four months. Therefore, regions and house types showing year-over-year price increases do not necessarily indicate current upward trends but rather reflect that despite declining prices since spring, they remain higher than last year.

Interestingly, despite the surge in active listings and record-low demand for houses, average prices are still up year-over-year in four of the five regions. The key takeaway for buyers and sellers is that market dynamics are highly localized, and relying on aggregate trends for the Greater Toronto Area may not provide accurate insights for real estate decisions.

Feel free to reach out to Ann or myself with any questions you may have. We're here and more than willing to help you make the most informed real estate decision that aligns with your current situation. Your inquiries are valued, and we're dedicated to ensuring your satisfaction throughout this crucial decision-making process.

The Greater Toronto real estate market has experienced a significant chill, driven by various factors that have led to a drop in home prices. Toronto Regional Real Estate Board (TRREB) data reveals a notable decline in the composite benchmark home price, with declining sales and an influx of new inventory being the primary contributors to this trend.

Home prices saw a sharp decline in October, with TRREB's benchmark price falling by 2.1% (equivalent to -$23,400), settling at $1,103,600. The City of Toronto witnessed an even steeper drop of 2.3% (-$24,900) in its benchmark price, reaching $1,083,700 during the same period. This decline marks the lowest price level since January 2023, erasing most of the gains made over the past year.

Year-over-year growth in both the TRREB (+1.42%) and City of Toronto (+0.3%) remained minimal, raising concerns of potential negative growth without significant shifts in inventory and sales trends. The residential real estate market in Greater Toronto is experiencing a notable softening in demand. In October, annual sales growth dipped by 5.8% to 4,646 homes, while new listings surged by 38% to reach 14,397 listings over the same timeframe.

This decline in sales, combined with the substantial increase in inventory, has shifted the industry's sales-to-new listings ratio (SNLR) to just 32%, signaling a "buyers' market" scenario and putting additional downward pressure on home prices. The decline in demand was largely anticipated as higher interest rates have deterred investor activity, and the market now faces the challenge of either reducing prices to accommodate end-user affordability or attracting investors back with more favorable borrowing terms.

The shift in market dynamics highlights the need for a delicate balance to stabilize the Greater Toronto real estate market and address the challenges it currently faces. As the market navigates changing conditions, it remains a crucial area to watch for prospective buyers, investors, and industry enthusiasts.

For comprehensive analysis and valuable insights regarding any future developments, be sure to stay connected with us for our ongoing real estate analyses and expert opinions.

The Bank of Canada (BoC) has decided to maintain its current interest rates in its most recent meeting, signaling a continuation of its economic strategy. In this article, we explore the implications of this decision for real estate and the broader economy, shedding light on critical economic challenges.

Introduction

The BoC's decision to keep interest rates unchanged for the second consecutive meeting is aimed at instilling confidence and preventing a resurgence of speculative behavior in the real estate market. However, it's clear from the BoC's language and the deteriorating economic conditions that further rate increases in this economic cycle are unlikely.

Economic Challenges and the Search for Relief

The Bank of Canada (BoC) opted to maintain its current interest rates during its latest meeting, marking the second consecutive meeting where rates remained unchanged. The decision to keep rates steady is aimed at reassuring the Canadian public about the potential for future rate hikes, with the goal of preventing a resurgence of speculative behavior in the real estate market. However, it is evident from the language used by the BoC and the worsening economic conditions that any further rate increases in this economic cycle are unlikely.

While it appears that we have reached the peak in terms of interest rates, the pressing question now is when we can expect to witness actual relief from the current economic challenges. The Bank of Canada continues to emphasize its commitment to a "higher for longer" economic environment.

Several key takeaways emerge from the BoC's latest statement. Firstly, the Bank acknowledges the mounting pressure that could potentially lead to a recession. It recognizes the increasing evidence that previous interest rate hikes have had a dampening effect on economic activity and have contributed to easing price pressures.

During the press conference, there was a notable remark about the narrow path to achieving a soft landing in the economy. The latest projections from the Bank suggest that this path has become even narrower, which can be seen as a cautious acknowledgment of the possibility of an impending recession. This sentiment aligns with the broader economic trends in Canada.

The evidence supporting concerns of a looming recession is substantial. One noteworthy example is the persistent negative trend in GDP when adjusted for Canada's rapidly growing population. In other words, in per capita terms, the country is already experiencing a recession. This data underscores the challenges Canada faces in maintaining economic stability in the face of adverse conditions. Secondly, it's crucial to closely monitor the decline in retail sales, as it serves as a pivotal macroeconomic indicator. When consumers start to pull back on their spending, the broader economy typically follows suit.

In the latest data, we observe a notable 0.6% decline in retail sales when adjusted for inflation, marking the lowest point reached in the entire year. The most significant areas of weakness are evident in the cyclical sectors, including automobiles, home furnishings, clothing, sporting goods, and hobby stores, all of which experienced declines last month. This trend aligns with what one would anticipate as the economy undergoes a cooling phase.

When we examine sales on a per capita basis, they still register negative year-on-year figures, even before factoring in the effects of inflation. This particular aspect of the data further underscores the possibility of a looming recession. It implies that consumer spending is not only retreating but also losing its real purchasing power, potentially indicating a recessionary environment. Consumers are now encountering a substantial obstacle, a sentiment that is notably reflected in the most recent consumer confidence indices. To underscore the gravity of the situation, it's worth noting that in the two-decade existence of the Conference Board's index, it has ventured below the 60-point threshold on only five occasions. This threshold is an important marker, as it typically indicates a pronounced shift in consumer sentiment.

Historically, this index dipped below 60 during the global Financial Crisis, experienced a brief stint in April 2020 amid the initial shockwaves of the pandemic, and now, in September and October of 2023, it has again fallen below this critical threshold. However, what makes this recent development especially noteworthy is the fact that, in its entire history, this index had never consecutively registered readings below 60 until these past two months. This prolonged dip signifies a prolonged period of wavering consumer confidence, which can have far-reaching implications for the overall economic landscape. The sentiment of gloom is not exclusive to consumers; it extends to the business sector as well. The Conference Board of Canada's Index of Business Confidence has experienced a significant decline for the ninth consecutive quarter. Presently, it has descended to levels that have only been witnessed twice in the last two decades, notably during the Financial Crisis and the onset of the COVID pandemic.

This persistent and deepening decline in business confidence is an alarming trend, reflecting the prevailing uncertainty and apprehension within the corporate landscape. An especially telling statistic is that nearly 60% of companies now anticipate deteriorating economic conditions over the next six months. This figure represents a substantial increase from the 39.5% recorded in July, highlighting the growing pessimism within the business community. This shift in outlook suggests a considerable shift in the perception of future economic prospects, which could have significant repercussions on business decisions and overall economic performance. Indicators signaling future sales have now plummeted to levels not witnessed in the past two decades, with the exception of periods marked by recessions. Additionally, a growing proportion of companies are identifying sales and demand-related issues as significant concerns in their operations.

When both consumers and businesses experience a decline in confidence, it invariably leads to reduced consumer spending and decreased investment in business activities. Recognizing this, the Bank of Canada (BoC) has rightfully adopted a cautious stance against tightening monetary policy further, given the evident deterioration in the overall macroeconomic environment.

Some readers may understandably point to the relatively robust labor market as a counterargument. However, it's crucial to bear in mind that job market conditions tend to be among the last factors to exhibit a downturn in response to economic challenges. This observation holds especially true following several years marked by an almost desperate demand for workers, during which businesses clung to their workforce assets until they had no other viable option. Yet, it is increasingly apparent that the time for significant changes in the labor market is approaching.

Introduction

In a surprising turn of events, Canada witnessed a slowdown in its annual inflation rate in September, leading to expectations that the Bank of Canada (BoC) will not raise interest rates on October 25. This article dives into the details of this development and its potential implications.

Understanding the Inflation Data

The most recent Consumer Price Index (CPI) data from Statistics Canada reveals that inflation increased by 3.8% year over year in September, a decrease from the 4% recorded in August. This deceleration in inflation was widespread and primarily attributed to reduced prices in specific categories.

Groceries: A Key Contributor

Grocery prices played a significant role in the inflation slowdown. In September, they saw a year-over-year increase of 5.8%, down from a 6.9% rise in August. This was mainly driven by a slowdown in the cost of items like meat, dairy products, coffee, and tea.

Durable Goods and Travel-Related Services

Durable goods also experienced a more modest annual increase of 0.4% in September, compared to the 1.4% surge in August. Additionally, the price of air transportation plummeted by 21.1% in September, contributing to the overall slowdown.

Gasoline Prices on the Rise

Offsetting the deceleration in the overall CPI was an increase in gasoline prices, which rose by 7.5% annually due to base-year effects. However, on a monthly basis, gas prices fell by 1.3%, playing a significant role in the 0.1% month-over-month decline in the CPI.

Core Inflation Measures: CPI Median and CPI Trim

The CPI median and CPI trim, the Bank of Canada's preferred measures of core inflation, also decelerated to 3.8% and 3.7%, respectively, on an annual basis in September. On a three-month annualized basis, CPI median fell to 3.5%, while CPI trim eased to 3.8%.

What This Means for the BoC's Interest Rates

Despite inflation remaining notably above the Bank of Canada's 2% target, September's inflation figure fell short of economists' expectations. Alongside signs of a slowing economy, such as a lackluster Business Outlook Survey and stagnant GDP, economists anticipate that the Bank will, for the second consecutive month, choose to keep interest rates steady at 5%.

Expert Opinions

Benjamin Reitzes, Managing Director at BMO, expressed that "inflation is currently uncomfortably high, but the trend favors the Bank of Canada." He emphasized that, given the lagging nature of inflation indicators and the weakening economy, there appears to be no immediate need for further rate hikes.

Marc Ercolao, an Economist at TD, concurred with the expectation of the Bank of Canada maintaining its current rates, stating that September's data marks "another small step toward addressing the remaining inflation concerns."

However, Randall Bartlett, Senior Director of Canadian Economics at Desjardins, cautioned that the Bank of Canada's announcement might include a "hawkish tone" and a "threat to raise interest rates again if data does not cooperate." This stance would align with Bank of Canada Governor Tiff Macklem's remarks in September.

Macklem pondered, "The focal point for the governing council will be whether to retain the policy rate at 5.00% and allow past interest rate increases to have their intended impact on the economy and alleviate price pressures. Alternatively, does the weight of evidence from various economic indicators suggest that further action is required to restore price stability?"

Conclusion

Canada's recent inflation figures have surprised economists, and all eyes are on the Bank of Canada's upcoming decision regarding interest rates. While inflation remains high, the signs of a weakening economy suggest that the BoC may opt to keep rates steady for the second consecutive month. However, there's a hint of caution in the air, as the central bank may adopt a more hawkish tone, keeping a close watch on inflation and the broader economic indicators. Stay tuned for the October 25 announcement to see how the BoC responds to these shifting economic dynamics.

Navigating the Greater Toronto Area Real Estate Market in a Shifting Landscape

When it comes to the real estate market in the Greater Toronto Area (GTA), there's a lot to consider. The impact of high borrowing costs, rising inflation, uncertainty regarding the Bank of Canada's future decisions, and slower economic growth have all played a role in shaping the GTA's real estate landscape. In this blog post, we'll explore the current state of the GTA real estate market, what the experts are saying, and how you can navigate this shifting environment.

The GTA's Real Estate Market in September 2023

In September 2023, the GTA real estate market faced some challenges, with home sales experiencing a 7.1% decline compared to September 2022. This dip was particularly noticeable in the sales of ground-oriented properties, including semi-detached houses and townhouses. Additionally, on a month-over-month seasonally-adjusted basis, sales saw a slight decrease.

Rising Listings and Prices

Despite the drop in sales, there was good news for potential buyers. New listings were up significantly compared to September 2022, which had seen an exceptionally low number of listings. Furthermore, the number of listings continued to trend upward on a month-over-month seasonally adjusted basis.

For those who are concerned about affordability, the MLS® Home Price Index (HPI) Composite benchmark showed a year-over-year increase of 2.4%. The average selling price also saw a three percent rise over the same period. On a month-over-month seasonally-adjusted basis, both the average selling price and the MLS® HPI Composite benchmark showed a minor decrease of less than one percent.

Short and Medium-Term Outlook

TRREB President Paul Baron provided insights into the short and medium-term outlook for the GTA housing market. While borrowing costs are expected to remain high until mid-2024, there's a consensus that they will gradually decrease afterward. This suggests that the second half of the following year could see a notable uptick in demand for ownership housing. Lower interest rates and a growing population are expected to drive this increase in buyers.

Challenges and Calls for Change

One noteworthy challenge is the affordability for first-time buyers. TRREB's annual consumer polling indicates that approximately half of prospective homebuyers in Toronto are first-time buyers each year. However, the average price of a condo apartment in Toronto now exceeds $700,000. Despite this, the first-time buyer exemption threshold for the City's upfront land transfer tax has remained at $400,000 for fifteen years.

TRREB CEO John DiMichele commended the Toronto City Council for requesting a report on a more appropriate exemption level. He stressed the importance of aligning housing and taxation policies to address the ongoing housing crisis.

Conclusion: Navigating the GTA Real Estate Market

As the GTA's real estate market faces various challenges, it's essential to stay informed and be aware of both short-term and long-term trends. While high borrowing costs and economic uncertainties pose challenges, there are opportunities for buyers, especially in the second half of 2024 when interest rates are expected to trend lower.

Moreover, advocacy for policy changes, like updating exemption thresholds to make housing more accessible, is crucial to ensuring a fair and balanced real estate market in the GTA. With all these factors in mind, prospective buyers and sellers should stay informed and consult with experts to make well-informed decisions in this ever-evolving market.

How Recent GDP Data Could Impact Mortgage Rates

We've just received the latest GDP data for both Canada and the United States, and in this blog post, we'll dive into how these figures might affect mortgage rates in the near term. Additionally, we'll explore the challenges posed by the mortgage stress test in Canada and the pressing issues facing Canadian mortgage borrowers.

Canadian GDP Sees Sluggish Performance

Last week, Statistics Canada confirmed that our Gross Domestic Product (GDP) displayed no growth in July, following a 0.2% decline in June. Moreover, the estimate for August indicated a meager 0.1% expansion in our economy. These statistics prompted adjustments in the bond futures market, leading to reduced expectations of another interest rate hike by the Bank of Canada (BoC) this year. This trend aligns with the market's sensitivity to economic data releases.

The sluggish momentum in our GDP growth underscores the impact of the BoC's previous interest rate hikes, which are now becoming discernible. It also suggests that the savings buffers created during the pandemic, enabling consumers to manage higher costs while maintaining spending, are gradually depleting.

However, it's essential to note that sluggish economic growth alone won't suffice to bring inflation back in line with the BoC's 2% target. The overarching theme is that we have a considerable distance to cover before reaching that objective.

Strong and Steady US GDP Growth

In stark contrast, recent data reveals that the United States achieved a year-over-year GDP growth rate of 2.1% in the second quarter. The US economy is currently operating at a significantly more robust pace compared to Canada, driven by two key factors:

1. Productivity Surge: Productivity in the United States has shown remarkable improvement since the pandemic began, whereas Canadian productivity has steadily declined during the same period. The significance of this measure, particularly over the long term, cannot be overstated.

2. Household Debt Discrepancy: During the 2008 Great Recession, US households substantially reduced their debt levels, while Canadian households continued to accumulate debt, as indicated in the chart. This divergence in household debt-to-GDP ratios suggests that the US consumer may be less sensitive to interest rate hikes, potentially causing the US Federal Reserve to maintain higher policy rates for a more extended period than the BoC. This scenario could have repercussions on Canadian fixed-mortgage rates.

Fixed vs. Variable Mortgage Rates

Fixed mortgage rates in Canada are heavily influenced by Government of Canada (GoC) bond yields, often moving in tandem with their US counterparts. This synchronization may keep Canadian fixed mortgage rates elevated, even amid a weakening domestic economy.

Conversely, variable mortgage rates in Canada are not subject to the same constraints. They adjust in line with the BoC's policy rate, providing a more accurate reflection of domestic economic conditions.

Reevaluating the Mortgage Stress Test

As our economy decelerates and our housing markets cool down, it's time to reconsider some established practices. One such practice under scrutiny is the 2% inflation target. Some argue that this target is arbitrary and that a slightly higher target, around 3%, might be more suitable in the future.

The mortgage stress test is another policy tool under scrutiny given the evolving circumstances. While it made sense to qualify borrowers at rates close to long-term averages when mortgage rates were exceptionally low, the situation has changed. Mortgage rates have climbed above historical averages, and the BoC's policy rate remains in restrictive territory. The question arises: Is it still appropriate to qualify borrowers at rates 2% higher than their already elevated current levels?

While an immediate change to the stress-test rate isn't advocated, policymakers must navigate the housing market's momentum to combat inflation. There's also the issue of excess leverage in certain regional markets that heated up during the pandemic. However, the debate about reducing or altering the stress test will likely intensify, perhaps sooner than anticipated.

An Unjustifiable Policy: Renewal Borrowers' Dilemma

A notable flaw in our banking regulator's mortgage rules is the requirement for renewing borrowers switching to a different lender at renewal. They must be requalified at today's stress-tested rates, unlike borrowers who renew with their existing lender.

Initially designed to prevent excessive competition among lenders for highly leveraged borrowers, this policy inadvertently traps many borrowers with their existing lenders. This often forces them to renew at inflated rates. Despite criticism, the regulator has yet to address this anti-competitive policy and its impact on borrowing costs.

With today's stress-test rates exceeding 8%, more borrowers are unable to access competitive rates. This should increase pressure on our regulator to rectify this issue.

In Conclusion

While the five-year GoC bond yield showed minimal changes recently, a mid-week surge in bond yields led to further increases in fixed mortgage rates. Predicting when fixed rates will stabilize is challenging due to the strong upward momentum in bond yields. Therefore, those seeking a mortgage are advised to secure the best available rate today, as even a seemingly less favorable pre-approval rate could become highly competitive in the near future.

Variable-rate discounts have remained unchanged, and although the consensus suggests the BoC may have completed its rate hikes for 2023, uncertainty persists. The bond futures market's volatility, coupled with forthcoming employment reports from both the US and Canada, could trigger additional rate fluctuations.

August 2023 Market Stats

In this article, we'll delve into the August 2023 real estate market statistics and explore the factors that influenced these trends. From increased borrowing expenses to ongoing economic uncertainty and decisions made by the Bank of Canada, we'll dissect the data to gain a better understanding of what's happening in the housing market. Let's start by examining the key highlights.

Home Sales Decline in August 2023

Increased borrowing expenses, ongoing economic uncertainty, decisions made by the Bank of Canada, and limited listing availability led to a decline in home sales in August 2023 when compared to the same month in 2022. During this period, the average selling price remained relatively stable. When considering monthly adjustments for seasonal factors, both sales and the average price experienced slight declines

Greater Toronto Area Statistics

In August 2023, REALTORS® in the Greater Toronto Area recorded 5,294 sales, marking a 5.2 percent decrease from August 2022. However, there was a positive development in new listings, which saw a 16.2 percent year-over-year increase, offering some relief in terms of supply. Nonetheless, when looking at year-to-date listings, there remains a significant decrease compared to the same period in the previous year. On a seasonally adjusted basis, sales showed a marginal one percent month-over-month decline when compared to July 2023, while new listings experienced a slight 1.3 percent increase compared to July.

Stability in Average Selling Prices

"During the summer, we witnessed more balanced market conditions compared to the tighter spring market. Consequently, selling prices remained relatively stable, hovering around last year's levels and showing a slight dip compared to July. The increase in interest rates, which resumed in May after a pause in the winter and early spring, necessitated adjustments from many buyers to meet higher monthly payment requirements. Notably, not all sellers chose to accept prices lower than their expectations, leading to a reduction in the number of sales," explained TRREB Chief Market Analyst Jason Mercer.

In terms of statistics, the MLS® Home Price Index Composite benchmark for August 2023 demonstrated a year-over-year increase of 2.5 percent. Similarly, the average selling price experienced an uptick, albeit a modest one, of less than one percent, reaching $1,082,496 over the same period. On a month-over-month, seasonally adjusted basis, the MLS® HPI Composite benchmark remained largely unchanged, while the average price declined by 1.6 percent.

Impact of Interest Rates on Affordability

"As higher interest rates have unquestionably affected affordability, the anticipation of increased taxes will additionally strain households' financial positions, particularly younger buyers who may have limited savings. As the City of Toronto deliberates raising the municipal land transfer tax (MLTT) rate for properties exceeding $3 million as a source of revenue, it should also contemplate offering support to first-time homebuyers grappling with the challenge of entering the market. Adjusting the tax rebate threshold to align with today's elevated home prices could be a viable solution," suggested TRREB CEO John DiMichele.

Tactics and Trends in Home Listings

On a side note - Over the past month, We’ve observed an increasing number of homes listed for sale at notably aggressive prices. In certain instances, sellers opt to list their homes with artificially low asking prices as a tactic to draw in multiple buyer offers. However, when the offer date arrives and they receive multiple offers, the sellers often reject all of them because none meet their price expectations. Subsequently, these sellers relist their homes at the desired price, resulting in their properties languishing on the market for weeks as buyers are unwilling to meet those price demands.

While some sellers are gradually reducing their asking prices, others are taking their homes off the market temporarily, with plans to relist them in September. Although this is a common approach among real estate agents during the summer months when buyer activity typically slows, it remains intriguing to see how effective this strategy will be this year, given potential shifts in the market beyond the usual seasonal patterns.

The Unique Challenges of 2023

The uniqueness of this year stems from a changing market influenced by today's significantly higher interest rates. Some buyers are hitting the pause button because they find it increasingly challenging to afford a home at the current interest rates, especially when undergoing stress testing for a mortgage at around 8%.

Source: Market Watch

For the latest updates and in-depth analysis of real estate trends, stay tuned to Market Watch.

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