There appears to be early signs of life in the GTA housing market, after both buyers and sellers spent a good chunk of the last year on the sidelines.
But with new listings at a 20-year low in February and higher borrow costs continuing to weigh on the market, it’s anyone’s guess what the typically busy spring season could bring.
Will it look like 2022 when the beginning of an aggressive interest rate hiking cycle by the Bank of Canada brought the pandemic buying frenzy to a virtual standstill?
Or will the market spring to life, after months of little to no activity?
Realtors and others who follow the industry closely aren’t sure what to expect.
They mostly agree that buyers and sellers will return to the market in greater numbers but whether that means the end of what RBC once called a historic housing correction isn’t as clear.
“I would say that we have some sense that we might actually get to see a little bit of a spring market. There's been an uptick in our incoming transactions and we have seen an increase of 30 per cent in deposits into our trust account. So there is an increase in activity. But is it enough for me to say to you that we are going to have a booming spring market? No,” John Lusink, president of RealServus, which owns Right at Home Realty, Condos. ca and MrLOFT.ca, told CP24.com this week. “That is because of the listing inventory. We are currently at just over 2,000 listings for Right at Home and that hasn’t changed since last May. It is a 25 per cent increase over a year ago. But that doesn’t even come close to making it interesting for buyers.”
The average price of a Toronto home was $1,095,617 in February.
While that represented a nearly 18 per cent decline from one year ago, it was up approximately five per cent from the previous month.
Speaking with CP24.com, Lusink said that prices have now largely returned to “quasi 2020” levels in the GTA and may even have found a bottom.
He said that lately he is hearing more about multiple offer situations on properties, although he concedes that few of those bidding wars are resulting in homes changing hand for hundreds of thousands of dollars over asking price as was commonplace during the early days of the pandemic.
In one case, he said that a creative buyer made two offers. One with no conditions whatsoever but below list price; another for more money but with conditions.
“There is I guess a floor, a pretty tough floor, under the current level of pricing because there just isn't the competition,” he said. “Sellers are saying ‘why would I lower my price? I'm the only one on the street for sale.’ So until we see an increase in in product we aren't going to see the effect on price. It is really about supply from my point of view.”
Higher levels of activity expected in the second half of 2023
Data from the Toronto Regional Real Estate Board showed that new listings were down 41 per cent year-over-year in February, continuing a recent trend.
But TRREB is nonetheless expecting higher levels of activity this spring and into the second half of this year, according to its chief market analyst Jason Mercer.
In an interview with CP24.com, Mercer said that he expects rent prices which have risen by more than 20 per cent in the GTA over the last year will be a “big factor” in convincing some individuals who deferred home buying plans to enter the market in the coming months.
Other would-be buyers who have held off amid the rapid increase in the cost of borrowing may also be more likely to re-enter the market now at a lower price point, he said.
“People that moved to the sidelines to come to terms with higher borrowing costs, more and more of them will have likely weighed their options and are now going to be thinking about maybe purchasing a different home type or buying in a different part of the GTA or what have you,” Mercer told CP24.com. “As we move into the second half of the year, that gap between 2022 and 2023 (in prices and listings) will start to narrow because we are anticipating, you know, an acceleration in activity.”
Bank of Canada policy will continue to impact market
Mercer said that TRREB had already been calling for an uptick in buying activity and prices in the second half of this year “notwithstanding” the Bank of Canada’s interest rate trajectory.
However, he said that U.S. banking instability which now has some traders betting on earlier than expected rate cuts from the Bank of Canada could be a “wild card” that provides a further spark for the market.
“If we were having this discussion a couple of weeks ago, you know, probably the best case scenario would have been that rates remain somewhat flat. At least from the Bank of Canada's perspective. Now there's a bit of a wild card with what we've seen in the banking industry over the last week or so,” Mercer said. “Will we see movement on the Bank of Canada to the downside? That would certainly kick start things a little bit more than expected as we move through the year.”
Prices have fallen but affordability has worsened
The Bank of Canada increased its overnight lending rate eight consecutive times between March, 2022 and January of this year, pushing borrowing costs to their highest level since 2007.
Victor Tran, who is a mortgage expert with RATESDOTCA, said that while the pace of increases certainly had an impact on demand there are some signs that is changing.
Notably, Royal LePage released a new report on Thursday which found that the majority of the people (62 per cent) who deferred a home purchase due to high interest rates in 2022 plan to return to the market this year.
“Entering 2023 pretty much everyone expected another slow year but surprisingly the first couple weeks of January things ramped up suddenly. I have had a huge uptick in pre-approval inquires and a lot of my clients asking for rate holds, so I still feel like the demand is there and buyers are just sitting on the sidelines waiting for an opportunity to come up,” Tran told CP24.com. “I think buyers are just tired of waiting, you know. Everyone has just been waiting around and now that that the rates seem to be stabilizing a bit, they are realizing that this (higher rates) is just the new norm.”
Tran, who also works part-time as a realtor in the GTA, said that he has made offers on two condos in the last few weeks that attracted more than 10 bids.
He said that he expected those bids to be “low-ball offers” but was told by the listing agent that all of them were “competitive” and “close to what the market was showing.”
It’s just a few listings, he admits. But he said that it lines up with what others in the industry are telling him.
In other words, the window for bargains may have already closed.
“Affordability now is probably worse than before,” Tran said. “In Durham Region there are some deals to be found. Their housing market took a bigger hit than Toronto, we saw 20 to 30 per cent declines in certain areas. So sure that probably balances out (with the higher cost of borrowing), But in Toronto affordability is worse than before.”