There were no surprises in the residential resale data for the month of August. As forecast in last month’s Report, while the benchmark rate of the Bank of Canada remains at its lofty rate – it is currently 5.0 percent – and the average sale price for all properties sold, although declining, is still high, sales volumes will remain low. And that is what happened in August.
During the month of August, only 5,294 residential properties were reported sold. In July, 5,245 properties were reported sold. Compared to August of last year, sales declined by 5.2 percent. In August of 2022, 5,584 properties were sold. Declines in sales volume were particularly noticeable in the case of detached (minus 12 percent) and semi-detached properties (minus 14.4 percent) across the region. By comparison, condominium apartment sales volumes increased by 7.6 percent compared to last August. These numbers are clearly a reflection of the affordability barriers impacting buyers.
The average sale price of detached ($1,416,366) and semi-detached ($1,067,980) properties is almost double the average sale price of condominium apartments. In August, the average sale price of condominium apartments throughout the region was $705,572. It was slightly higher in the City of Toronto, coming in at $724,549, and $760,485 in the City’s central core, where 63 percent of all condominium apartment sales take place.
Once again, the sales of detached and semi-detached properties that took place did so at a pace and at sales- to-list ratios that are more consistent with a classic robust market, notwithstanding the low sales volumes. In the City of Toronto, all detached properties sold in 18 days and at 101 percent of their asking price. Semi-detached properties moved even faster. All sales took place in only 13 days and for 105 percent of their list price. In Toronto’seastern districts, all semi-detached properties sold in only 11 days and at 107 percent of their asking price. In isolation, these sales numbers would reflect a resale market that’s on fire.
Underlining this performance are several factors. Firstly, although supply improved in August, it is still historically low. During the month of August, 12,296 properties came to market, 16.2 percent more than the 10,578 homes that came to market for the same time last year. The increase in inventory remains historically low. Secondly, demand remains extremely high. This is due primarily to much higher population levels as a result of the tremendous increase in immigration. In August alone, Canada welcomed 100,000 new immigrants, at least half making their way to southern Ontario. Thirdly, mortgage interest rates, coupled with 2 percent stress testing, make the purchase of detached and semi-detached properties at their current price points prohibitive. Essentially, what this data is telling us is that demand is high, but few buyers can afford Toronto real estate. Those who can buy, are buying quickly, and paying above the seller’s asking price.
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.
In 1989, interest rates increased to 12.29 percent, and then to 13.04 in 1990. These increases and their negative economic impact brought Toronto’s resale market to a halt. Average sale prices began to decline and continued to do so for more than 6 years. At their peak in 1989, the average sale price for a Toronto home was $273,698. By 1996, the average sale price had slid to $195,169, a decline of 28.5 percent.
The decline in sales volumes and average sales prices came to an end in 1996 because by 1996, mortgage interest rates had fallen to 4.53 percent (Statistics Canada). The confluence between lower average sale prices and mortgage interest rates made real estate in the Toronto region once again affordable. Because ofpersistently low mortgage interest rates, it has remained affordable, until the Bank of Canada commenced its benchmark rate hikes in March of 2022. We have seen 10 rate increases since then.
If the cost of borrowing remains high, we may have to wait until the confluence of lower average sale prices and lower borrowing costs connect to drive an increase in sales volumes, as occurred in 1996. The demand is certainly there, and growing, as Canada’s latest immigration numbers attest. In future reports, we will monitor this data to determine if we are indeed into a similar market restructuring as occurred more than 30 years ago.