During the first quarter of 2023 the Bank of Canada’s benchmark rate stood at 4.50 percent. Even though it had gradually risen to that number throughout 2022, buyers and sellers had adjusted to the new rate reality, and as a result, the sale of homes in the Toronto region was moving along at a very brisk pace. Too brisk for the Bank of Canada. In June the Bank of Canada once again increased its benchmark rate, this time to 4.75 percent and did so again by another 0.25 percent in July, effectively killing the resale market. The second half of 2023 saw a steady decline in monthly sales, from a high 8,961 in May, before the Bank of Canada began to tighten its monetary policy, to a low of 3,423 reported resales in December.

What makes 2022 and 2023 numbers concerning is the fact that population in the Greater Toronto Area has grown by almost 15 percent since 2011. In 2011, the area’s population was 5,593,000. As a result of high levels of immigration, as we enter 2024, the population of the area is now approaching 6,400,000. With growth of almost 1 million people since 2011, and without the impact of the pandemic, first government liquidity, and then the Bank of Canada’s tightening monetary policy, the greater Toronto resale market should be producing 100,000 to 105,000 reported sales annually.

So, what happened in 2022, and more significantly in 2023? Simply stated, affordability was beyond the grasp of most buyers. The Bank of Canada began its benchmark rate hikes in 2022, and then continued in draconic fashion to increase its policy rate in 2023. In July of 2022, the policy rate was 2.50 percent. By July of 2023 it had doubled to 5.00 percent, where it currently remains.

In October, 4,646 residential properties were reported sold, almost 6 percent fewer than the 4,930 reported sales last year. Year-to-date, 56,367 homes have changed hands. Based on the current pace of sales, the year will finish with about 70,000 reported sales. Aside from 2018, (and of course, 2022, when the Bank of Canada began its draconian rate increases when only 78,017 homes changed hands), we have to go back 2 decades to see such low sales numbers. The low sales volumes in 2018 were due to the implementation of the then Liberal government’s 2017 Ontario Fair Housing Plan.

The Plan introduced a non-resident speculation tax (NRST), and it expanded rent control to all private rental units, including those built after 1991. A government statement at the time boasted that the Plan was designed to “make housing more affordable... to create fairness and opportunity during this period of rapid economic change”. Since the implementation of the Plan, the NRST has increased from 15 percent to 25 percent of the purchase price of a property. In 2017, the average sale price for properties sold in the greater Toronto area was $822,510. This October, the average sale price for all properties sold came in at $1,125,928, an increase of 37 percent over the last six years. Affordability has clearly not been achieved. A clear indication of the ineffectiveness of government intervention in the residential resale marketplace, particularly when that intervention is politically and not realistically motivated.

Condominium apartments are the only housing type that is showing rising sales volumes. In August, condominium apartment sales (1,086) increased by 6.5 percent compared to August 2022. In the 905 region condominium sales (523) increased by 10.17 percent. These are properties that buyers can afford.

Given the fact that we are unlikely to see a decline in the Bank of Canada’s benchmark rate until the middle of 2024, in fact, we may experience an increase before that time, and given the fact that household incomes are not increasing dramatically, we may be in the early stages of a market restructuring. (In 2021 the median economic family income in Toronto was $106,000. City of Toronto Census Study). A market restructuring took place in the early 1990s and there are indications that we may be about to re-experience that era.

From 1985 to the spring of 1989, average sales prices in the Toronto region increased by an eye-popping 113 percent. During this period, there were factors at play that were not dissimilar to today, particularly tremendous demand. Even though mortgage interest rates were much higher than they are today, there was an unmitigated belief that wealth could only be achieved and preserved by buying and owning real estate. As a result, there was a market frenzy, not unlike the height of the pandemic. It was this frenzy that caused prices to escalate by 113 percent in a mere 4 years.

The decline in reported sales since May is 42 percent, with a decline of 30 percent when July sales are compared to those of June of this year. These results unequivocally indicate how powerful the impact of Federal monetary policy is on the real estate market. Interestingly, the decline in average sale prices, which has also taken place, is not nearly as dramatic as the decline in sales. Compared to a 42 percent decline in sales, the 3 percent decline in average sale prices is negligible.

Ironically, the decline in reported sales and average sale prices is not an indication of a weak market. Rather, it reflects affordability, or stated more accurately, the lack of affordability. Each rate hike that the Bank of Canada implements makes it that much harder for buyers and in many instances removes them from the market. Those buyers that have the financial ability are still engaged and continue to drive the market in ways that appear to be incongruous with sales and average sale price numbers.

In July, all 5,250 properties reported sold were contracted after only 17 days on market (on average), while all properties sold for 102 percent of their asking price. In the City of Toronto, properties sold for 103 percent of their asking price. Detached properties in the City of Toronto, which had an average sale price of $1,641,000, sold at 102 percent of their asking price, whereas semi- detached properties ($1,257,000) sold for 108 percent of their asking price. In Toronto’s eastern districts, semi- detached properties sold for an eye-popping 113 percent of their asking price and in only 11 days. These numbers reflect a market that is extremely robust. Unfortunately, because of a lack of affordability generated by the Bank of Canada, some buyers simply can’t participate in it.

Notwithstanding these declines, the market remains exceptionally strong, with demand continuing to outstrip supply. The decline can be attributed to a number of factors. These include a return to the historical seasonal declines in June (distorted during the pandemic), and the lack of supply. In June, only 15,865 new properties came to market. This was three percent fewer than the 16,353 that came to market last year. At the end of the month, there were only 14,107 homes available to buyers (more than 12 percent fewer than last year). Given the incredible growth in the Greater Toronto’s population, at least 20,000 properties should be available to buyers to even begin to reflect a balanced marketplace, if not many more.

Affordability is the main issue impacting the resale market. In June, after a five-month pause, the Bank of Canada raised its overnight rate to 4.75 percent, the highest it has been since 2001. Unfortunately, the Bank has given every indication that it will once again increase its benchmark rate in July. The consensus amongst Canadian economists is that the rate will go to five percent. This will have a further dampening effect on the resale market, as most buyers are already struggling with affordability. As it is, buyers in the Greater Toronto Area need a 20 percent down payment ($236,424) and a household income of more than $250,000 to buy the average-priced property in the Greater Toronto Area.

Even with these staggering high costs of housing, the Toronto and region resale market remains surprisingly resilient. In June, all properties reported sold were on the market for only 14 days. Last year properties were on the market for 15 days. Not only did they sell quickly, but they all sold for an eye-popping 104 percent of their asking price. These numbers include all condominium apartment sales. Sales of detached and semi-detached properties in the City of Toronto sold even faster, in 11 and 10 days, respectively. All semi-detached properties in the City of 

There are still a few communities in the 905 where the average sale price is under $1 Million but they are becoming a rarity and generally located in the outer sectors of the region.

The strength in the resale market is due to a combination of population growth and the lack of supply. In June alone, Canada’s population increased by 84,000 due to immigration. Almost half of those immigrants will relocate to southern Ontario. Last year 227,235 immigrants arrived in Ontario. British Columbia, the next highest destination for new immigrants, saw only 83,200 relocating to the Province (Source: © Statista 2023).

If the Bank of Canada increases the benchmark rate as is expected in July, sales will continue to decline throughout the region, although, given the demand, average sale prices will only moderately decline. For the time being, there are no forced sales due to financing problems, and hopefully, the benchmark rate will begin to decline before that becomes a problem that the resale market will have to face. It is anticipated that the benchmark rate will begin to decline in 2024, although any declines will be moderate. The day of two-percent mortgage interest rates that propelled the resale market through the pandemic will become a distant, and no doubt longed for, memory.

Clearly the demand for ownership in the greater Toronto region remains strong. Satisfying it continues to be a problem. Government at all levels have simply failed to provide the necessary housing that the region’s high levels of immigration have necessitated. What new housing that has been provided has become even more expensive due to excessive regulatory barriers. A recent C.D. Howe study estimates that in Toronto new homes are $350,000 more expensive due to the regulatory burdens that are choking the housing supply.

It is no surprise that for the forth connectivity month the average sale price for all properties sold in the Toronto region once again increased, which includes condominium apartments which formed almost 30 percent of the 9,012 reported sales.

The average sale price of condominium apartments was only $748,483 across the region. Detached properties came in at $1,556,566 (but $1,913,132 in the City of Toronto) and the average sale price of semi-detached properties was $1,198,185 (and $1,398,821 in the City of Toronto). What these numbers demonstrate is that the exodus to regions outside the City of Toronto that took place during the pandemic appears to have reversed. During the pandemic demand in the 905 region caused average sale prices in the region to rival Toronto prices. Since January prices throughout the combined City of Toronto-416 region have increased by more than 15 percent.

Demand and supply are having a major impact on average sale prices. In May 15,194 new properties came to market. This was almost 20 percent fewer properties than came to market last May (18,687). As a result of the fewer properties coming to market and the high number of sales that were achieved in May, beginning in June there were merely 11,868 properties available to buyers, substantially lower than the 10 year average for available listings for the month of May.

Given the shortage of available properties on the market it is not surprising that months of inventory for the region has dropped to 2.2 months and that all sales (on average) took place at 105 percent of their asking price. And these sales took place in only 14 days! Even though the average sale price of detached properties came in at almost $2,000,000 in the City of Toronto, all sales took place in 13 days and at 105 percent of their asking price. Semi- detached properties, which had an average sale price of almost $1,400,000, all sold in a mere 11 days and at 111 percent of their asking price. Semi-detached properties in Toronto’s eastern districts all sold in an eye-popping 7 days and at an astounding 118 percent of their asking price. These are truly incredible market statistics and speak to a market very reminiscent to that at the height of the pandemic market, a phenomenon that only a few months ago we thought would be a historical phenomenon never to be repeated.

This trajectory is unlikely to change in May. It would have been even steeper if not constrained by affordability and the alarming decline in supply.

Although April’s 7,531 residential sales were 5.2 percent less than the 7,940 sales achieved last year, they reflect growing buyer confidence and acceptance that the exceptionally low financing costs enjoyed during the pandemic are a thing of the past. Demand has not abated, pushed to extraordinarily high levels by growth in population in the greater Toronto region, driven years of high levels of immigration. Between the years 2018 and 2022, more than 600,000 immigrants have moved into southern Ontario. New housing supply has not kept pace with this growth in population.

As a result of the eye-popping demand, average sale prices continue to rise in April, even in the face of high mortgage financing costs and borrower stress testing which adds 2 percent to the interest rate at which borrowers are attempting to qualify. April’s average sale price of $1,153,269 was only 7.8 percent lower than the average sale price achieved in April 2022. When interest rates begin to decline, which is expected in 2024, we could see average sale prices increasing to the stratospheric heights achieved during the pandemic. Six months ago this possibility was inconceivable.

The number of new properties coming to market became even more troubling during April. In April only 11,364 new listings became available to the many buyers waiting to buy. This is a 38 percent decline compared to the 18,416 properties that came to market last April. More troubling is the available supply as April came to an end. At the end of April, there were only 10,373 active listings, more than 20 percent less than the 13,092 properties available to buyers at the end of April last year. April marked the first month since March of last year when active listings were fewer than the corresponding month the year before.

Given the demand and the lack of supply in the greater Toronto area, it is not surprising that all available properties (on average) sold in only 17 days. The speed at which properties sold in April is quickly approaching the speed with which properties in the greater Toronto area sold during the height of the pandemic market – 8 days! All properties in the City of Toronto sold in only 18 days (slightly slower due to the preponderance of condominium apartment sales) but incredibly for 103 percent of their asking prices. In Toronto’s eastern districts all properties, condominium apartments, detached and semi-detached properties sold in only 11 days and for an eye-popping 109 percent of their asking prices. Semi-detached properties in the eastern districts sold in only 8 days at 115 percent of their asking prices. The average sale price of semi-detached properties in Toronto’s eastern districts was $1,223,687. Across all of Toronto the average sale price for semi-detached was $1,326,462. Detached properties came in at $1,787,752

February’s 4,765 reported sales represented a 54 percent increase compared to January’s 3,089 sales, while March’s 6,896 sales saw a 45 percent jump in sales compared to February. If the market continues at its current pace April’s sales may come in at close to 8,000 which will exceed the 7,226 reported sales in May 2022, the last month that saw more than 7,000 sales.

Like reported sales, average sale prices also continue to rise.

These numbers also speak to increasing levels of competition amongst buyers. Multiple offers are once again becoming the norm, particularly in desirable neighbourhoods. There are simply too many buyers for too few available properties. For example: in the City of Toronto there were only 215 available semi-detached properties for sale at the end of March. In March 202 semi- detached properties were reported sold. Effectively all semi-detached properties that came to market in March sold in the same month. Most semi-detached properties that sold did so in competition. All detached properties sold in only 16 days at 102 percent of their asking price, at an average sale price of $1,708,373.

The only real supply in the City of Toronto is in the condominium sector. At the end of March there were 4,292 properties in total available for sale in the City of Toronto (and 10,120 throughout the greater Toronto area). More than 62 percent of all listings in the City of Toronto (2,675) are condominium apartments. In March 1,410 condominium apartments were sold in the City of Toronto, with another 711 condominium apartment sales in the 905 region. Although condominium apartment sales were not as robust as ground-level property sales, they did sell for 100 percent of their asking price and in 22 days, 3 days longer than the overall average of 19 days on market. The average sale price of all condominium apartments came in at $732,944, and $786,694 for sales in Toronto’s central core, where most condominium apartments are located.

Looking toward April we anticipate further increases in the number of properties reported sold, perhaps as high as 8,000, and average sale prices rising, but moderately, constrained by the high cost of mortgage financing. Barring any unforeseen economic changes this should be the resale market’s pattern for the remainder of 2023. The Toronto and region resale marketplace can be summed up as follows – high levels of demand constrained by low levels of supply and affordability.