May 2023 Toronto Real Estate Market Report

May 2023 Toronto Real Estate Market Report

The April 2024 Market Report concluded with the following forecast for May for the Toronto and Region resale market: “The average sale price will continue to hover around $1,150,000, with sales expected to come in at the 7,000-plus range.” Not surprisingly, May’s results came in as expected. The Toronto and Region achieved 7,013 property sales, and the average sale price came in at $1,165,691. As in previous months, the Toronto and Region resale market has and continues to be constrained by affordability, or more accurately, the lack thereof.

The 7,013 sales achieved in May were almost 28 percent fewer than the 8,960 sales reported last year. Comparisons to last year are not helpful in understanding the current Toronto resale market. Reported sales for May 2023 were the highest achieved in any month last year. The Bank of Canada’s benchmark rate had remained steady at 4.5 percent through the first 5 months of 2023. Buyers had adjusted to borrowing rates and to the extent their household incomes permitted, had enthusiastically entered the resale market. That buying enthusiasm was one of a number of economic factors that caused the Bank of Canada to increase rates in June, and then again in July. By August the resale market was in sharp decline, where it has remained. A decline in reported sales, not demand.

The decline in the average sale price, which was moderate, from $1,195,409 to $1,165,691 was driven by the decline in average sale prices in the 905 region and the 1,942 condominium apartments (almost 30 percent of all report sales) that sold at an average sale price of $730,815. In the City of Toronto, the average sale price for condominium apartments came in higher at $767,064.

In May inventory levels continued to rise. During the month 18,612 new listings came to market, 21 percent more than the 15,363 that came to market last year. By the end of the month there were 21,760 properties available to buyers, more than 83 percent higher than the 11,869 available last year. Although this number appears high by Covid-era comparison, it’s not out of line by historical comparison. For example, in May 2018 active listings totalled 20,919, and in May 2019, the year before the Covid-era disrupted the resale market, there were 20,017 properties available to buyers.

What the year-over-year data does not disclose is the enormous demand in the marketplace. This demand is constrained by a lack of affordability. With Toronto’s average household income before taxes hovering around $110,000 (CMHC) and average sale prices coming in at $1,165,691, many buyers are simply unable to participate in this market. Those that can are still driving a strong, robust resale market.

Throughout the Region, all detached properties sold in only 16 days and for 101 percent of their asking prices. In the City of Toronto, detached properties were reported sold in only 14 days and for 104 percent of their asking prices. The average sale price of all detached property sales in Toronto came in at an eye-popping $1,826,370. Semi-detached properties throughout the Region sold in only 13 days and for 106 percent of their asking prices. In the City of Toronto they similarly sold in only 13 days, but for 107 percent of their asking prices. The average sale price for semi-detached properties in Toronto came in at $1,416,496. Assuming the buyer has saved $284,000 (20 percent of the average-priced semi-detached property), the buyer would need to have a household income of approximately $240,000 in order to qualify for a mortgage of more than $1,100,000. In addition, the buyer would be expected to pay land transfer taxes of almost $50,000. Hence the affordability issue.

Condominium apartment sales continue to lag and act as a drag on the overall market. In May 1,942 condominium apartments were reported sold. On average these apartments took 25 days to sell and at only 99 percent of their asking price. A very different pace than detached and semi-detached property sales. The average sale price for all condominium apartment sales through the Region was $730,000. The poor performance of condominium apartment sales is especially due to affordability. Condominium apartments attract the first-time buyer cohort. First-time buyers, generally with lower household incomes, given prevailing mortgage interest rates and even average sale prices in the $730,000 range, are financially constrained from entering the resale market. It is for that reason the condominium apartment sales are underperforming compared to detached and semi- detached property sales.

As this Market Report was being prepared the Bank of Canada announced a 0.25 percent reduction in its benchmark rate, bringing it to 4.75 percent. The first reduction in four years. No doubt this will help with affordability, but only marginally. Furthermore, since the beginning of 2024 the bond market, and by association the mortgage market, have analyzed and digested current and future economic conditions, and fixed mortgage rates

have likely been priced into the expected Bank of Canada’s rate cut. As a result, there will be very little downward movement in five-year fixed mortgage rates. There will be some downward movement in variable rates.

With all this economic and resale market data at play, we should anticipate similar sales results in June as we saw in May, with some uptick in sales generated by the psychologically improved outlook generated by the Bank of Canada’s rate cut. Separate and apart from the Bank’s rate cut, we will see positive sales variances month-over- month compared to 2023 as we move into the second half of 2024. This is due to the dismal results achieved by the resale market from July through to the end of last year. If the Bank continues with a further rate cut in July the second half of 2024 be substantially stronger than the first half of this year.


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