There were no surprises in the May residential resale market data. As a result of rising mortgage interest rates, a process that started in March, the number of properties sold has declined, and average sale prices have moved down from the record-breaking highs of February.
During February, 9,052 homes were reported sold, with the Toronto and area’s average sale price coming in at an eye-popping, unsustainable $1,333,399. In May, 7,283 properties were reported sold, with an average sale price of $1,212,806. Since February, sales have declined by more than 19 percent, and the average sale price for all properties sold, including condominium apartments, has slipped by 9 percent.
It should be noted that even with this decline, the average sale price in May remains 9.4 percent higher than that achieved last May ($1,084,124).
A notable shift in market dynamics is the change in activity in the 905 region compared to the 416 (City of Toronto). Throughout the first two years of the pandemic, more sales were taking place, and average sale prices rose faster in the 905 region. This is no longer the case. During May, the average sale price for all properties sold in the 905 region came in at $1,212,806, 1.7 percent less than the City of Toronto’s average sale of $1,233,748. The ratio of sales has also shifted. Last year the 905 region accounted for 66 percent of all properties reported sold. This May, only 62 percent of all properties changing hands were in the 905 region.
These results are not surprising. The forces driving buyers to move to the 905 region, the need for more space, ground-level housing, and a sense of safety in less dense communities, have begun to wane. The Toronto area’s vaccinated against COVID19 population continues to grow, and the City of Toronto continues to open many amenities.
May’s market performance should not be misinterpreted as a market “correction”. Most of the economic factors that drove the resale market through the pandemic, and even before, are still at play, primarily the lack of supply and immigration to Southern Ontario. Separate from declining average sale prices and unit sales, the market continues to behave as it did before mortgage interest rates began to rise.
In May, 18,679 new properties came to market, marginally higher than the 18,593 that came to market last year. All 7,283 properties that changed hands in May did so after spending only 12 days (on average) on the market, marginally higher than the 11 days it took for properties to sell last May. All properties reported sold for 103 percent of their asking price, 104 percent in the City of Toronto. Semi-detached properties in the City of Toronto sold in only 9 days and at 111 percent of their asking price. Semi-detached properties in Toronto’s eastern trading districts sold at 117 percent of their asking price and shockingly, after only 8 days on the market.
This is not a market correction. Instead, this data reflects a market attempting to come to terms with higher rates, with more to come. Higher mortgage interest rates have had a psychological and an economic impact on the market, particularly on those buyers that are mortgage-rate sensitive and struggling with affordability.
Based on May’s performance, it would appear that condominium apartment sales will outperform ground-level sales, detached and semi-detached properties. May saw 1,264 condominium apartment sales in the City of Toronto. They sold at an average sale price approaching $800,000. All these apartments sold at 103 percent of their asking price and in only 15 days, only 2 days longer than it took to sell last year. The average sale price for all condominium apartments reported sold last May in the City of Toronto was only $766,462.
At the other end of the market spectrum, for properties having a sale price of $2 Million or more, the decline in sales was also not as severe as the overall market. Whereas the overall market declined by almost 39 percent, year-over-year, month-over-month, sales of $2 Million plus properties only reduced by a little more than 22 percent, making it clear that not all housing market sectors are responding similarly to rising mortgage interest rates.
Higher mortgage interest rates will cause average sale prices to decline marginally, plateauing during the summer months. The greater Toronto area, particularly the City of Toronto, has a very high employment rate, and demand remains strong. Unless the Bank of Canada raises the benchmark rate to the point that it drives the currently strong economy into recession, the lack of supply and increasing demand will keep the market strong and, unfortunately, unaffordable. When inflation subsides, and the benchmark rate declines, economic conditions and the housing landscape will be very similar to the tight market that existed before the pandemic became a factor. So what we are witnessing is a hiatus in the housing market, not a correction.
