To paraphrase T.S. Elliot, the Toronto and Region residential resale marketplace is ending the year not with a bang, but a very quiet whisper. November sales totalled 4,236 homes, down by 6 percent compared to the number of sales reported last November. This is the lowest number of sales reported for November since the economic downturn of 2008. As mentioned in previous market reports, the number of reported sales is particularly low when it is remembered that the Toronto Region’s population has grown by more than 20 percent in the intervening 15 years.
November marked the third consecutive month when total reported sales were less than 5,000. As 2023 comes to an end, there is an uncanny similarity to the way the year 2022 ended after the Bank of Canada implemented its punishing benchmark rate hikes.
Notwithstanding historically low sales numbers, the average sale price for all residential properties sold continues to hold firm and is ending the year stronger than last year’s sale prices for the same period. Over the period of August to November, sales were 6.7 percent higher in 2022, whereas average sales prices are 1.5 percent higher in 2023.
Strong sale prices in the face of declining sales are a market anomaly. There is, however, an explanation for this development. Until recently, supply has remained low. Even in November, only 10,545 new listings came to market, 16.5 percent higher than the 9,053 that came to market last year. At month end, there were only 16,759 properties available to buyers. Although this is an increase from previous months, it is still relatively low by historic standards.
The other side of the equation is demand. With the incredible surge in population growth in the Toronto Region, there are many more potential buyers looking for homes. Unfortunately, these buyers are constrained by a lack of affordability. Five-year fixed mortgage interest rates are over 6 percent, and to qualify, borrowers must pass the prevailing stress test, requiring them to qualify at more than 8 percent. There are, however, buyers that do have money and they are the ones participating in the resale market, keeping prices from falling noticeably. Unfortunately, there simply are not enough of them to push sales numbers higher.
This is most evident in the City of Toronto’s resale numbers. In November, the average price for detached properties came in at $1,617,918, 3.5 percent higher than last November. The same was true for semi-detached properties, wherein sale prices came in at $1,217,811, 2.4 percent higher than last year. Only condominium apartment sales and average sale prices retracted. Condo sales in the City of Toronto were down by 8.2 percent and average sale prices declined by 1.7 percent, to $720,280. Although condominium apartments are the least expensive housing type in Toronto, condominium apartments are the housing form sought out primarily by first time buyers who, regretfully, are financially the most vulnerable purchasing group. Almost 70 percent of all condominium apartment sales take place within the City of Toronto. At the end of November, there were 6,579 condominium apartments available to buyers in Toronto and the surrounding Region. Condominium apartments represent almost 40 percent of the Toronto and Region’s available inventory.
Unless the Bank of Canada eases its monetary policy – which is not expected to happen until at least the second quarter of 2024 – sales will remain low, at their current levels. If inventory increases, as expected, then eventually we will see some decline in average sale prices and a corresponding increase in sales numbers. That scenario is beginning to play out now but won’t be clearly evident until the market passes through the Holiday Season. In November, the months of inventory on market moved up to 2.4 months. In tandem, the sales-to-list ratio for all properties that came to market moved to 46.2 percent, approaching the 40 percent buyers’ market threshold. For the third consecutive month, the sale-to-list price ratio came in at 98 percent and the days on market moved up to 25 days, 13.6 percent higher than the 22 days properties spent on the market in November 2022.
These are all indications of a slowing market, constrained by affordability.
As the year comes to an end, only 62,576 properties have been reported sold. It is unlikely that December sales will substantially exceed 3,000, which means that 2023 will end the year with approximately 65,000 to 66,000 reported sales – a number that we have not seen in more than 2 decades. Last year, 75,049 properties were reported sold in the Toronto Region. Between 2010 and the beginning of the pandemic, yearly sales varied, with reported annual sales generally coming in at 85,000 or more. Between the years 2014 and 2017, sales exceeded 90,000 homes sold, with more than 100,000 properties reported sold in 2015 and 2016, while 2018 was an outlier with only 78,107 sales. That was the year the provincial government implemented the foreign buyer’s tax, which currently rests at 25 percent of the purchase price.
To paraphrase Queen Elizabeth’s 1992 speech… “2023 is shaping up to be a real estate market annus horribilis”