Home Prices Tumble Across the GTA Since February Peak, With Suburban Townhomes Leading the Pack

They were a hot commodity when the pandemic struck. Now Toronto-area townhouses are showing some of the biggest sales declines in this strangest of softening spring real estate markets.

Property website HouseSigma released data on April 26 showing the median price of a GTA townhome plunged 22% between Feb. 1 and April 19. Condos showed the least sales decline — 6.8% — in the same period, according to HouseSigma. Semi-detached and detached houses tumbled 13.5% and 12.1%, respectively.

While the region’s blazing home prices have continued to rise on a year-over-year basis in 2022, March showed a slight downturn of 2.6% from the February peak. Real estate experts say the softening has continued into April with some segments of the market showing more fortitude than others.

Among detached houses in 25 GTA communities, only Burlington saw a slight price increase of about 2%. Every other community experienced a decline in the medium price of detached houses, which escalated most dramatically during the pandemic.

HouseSigma director of business development Michael Carney cautioned that two and a half months of data means some results could just reflect a small sample size. “If you take a look at Burlington for all property types, instead of just detached (houses), there was actually a reduction of price in March,” he said.

Brock, southeast of Lake Simcoe, saw the median price of a detached house sink more than 29%. Georgina and East Gwillimbury saw declines around 20%. Toronto, Oakville and Newmarket houses dropped about 10% in the study period.

Even though many offices haven’t adopted a full-time return to work, Carney said many people are looking forward to a relatively normal downtown Toronto summer and that’s helped properties in the core hold their value. Carney said townhomes are probably seeing “a dramatic pullback” because they were so inflated last year as the next natural step up in space for condo dwellers.

John Pasalis, president of Leslieville real estate brokerage Realosophy, has been tracking sales and prices weekly instead of the usual monthly or year-over-year analyses. He said the market has been trending down since mid-March but in the last couple of weeks sales volumes are below the last non-pandemic period in 2019. While it’s probably not a cause for panic, he said, “It’s a super interesting trend,” and “a cause for some concern.”

Pasalis compared the change in average single-family home prices — townhomes, semis and detached houses — in the first three weeks of February to the first three weeks of April. He found prices down 15% in Milton, Whitby and Pickering. In Toronto, they dropped only 6%.

It’s a confusing market for buyers, he said. “If you’re a homebuyer and you’re looking in central Toronto, it’s busy. There are bidding wars. Condos are still relatively decent. But if you’re looking at a lowrise home in the suburbs it’s changed so much,” said Pasalis.

Some homes in the suburbs are still getting bidding wars. But with fewer showings, some sellers are panicking, sometimes because they’ve already bought another house, and they’re taking prices well below what they would have sold for a couple of months ago, he said. “I think it’s temporary but I don’t know how long temporary is,” said Pasalis.

“The thing I worry about is that prices we have today were basically fuelled on record low interest rates. I don’t care that people were qualifying at 5.25%. How much debt you take on depends on your monthly mortgage payment. That fact that you could get a five-year mortgage a year ago at 1.75% drove prices up.” Talk of five-year mortgage rates hitting 5% will weigh on how much debt people feel comfortable taking on, he said.

HouseSigma’s Carney says he expects Toronto-area home prices will continue to rise longer term. He cited the region’s strong fundamentals — high employment and a shortage of housing supply in the face of rising population demand — as the reasons the GTA isn’t likely to become a buyer’s market. “It’s either going to be a balanced market or a softer seller’s market,” he said.

If you’re not an investor or flipper and you bought your house to live in for a period of years, the current cooling won’t mean much in the long run, said Pasalis. But for people who bought in February, “it’s going to sting a little,” he added. “If you bought in February and you’re a first-time buyer and prices softened 15% or 20%, that’s a hard pill to swallow, even if it’s temporary.”

Source: The Star

Is Toronto’s Housing Market Finally Cooling? Experts Say They’re Already Seeing Signs It’s Slowing Down

Daniel Foch, a Markham-based realtor, has noticed a recent change in the buying behaviour of his clients: most used to bid on homes at a feverish pace but now they’re taking a “wait and see” approach, carefully calculating the right time to buy. Two months ago, the broker at Foch Family Real Estate saw bidding wars with as many as 20 potential buyers. Today, that number has, on occasion, dropped to as little as two offers.

Two years after the Bank of Canada dropped interest rates to record lows, the nation’s frothy real estate market is finally showing signs of moderation. The central bank’s overnight rate, which grew to 1% in April, has raised the barrier to entry for first-time buyers required to pass the federal government’s mortgage “stress test.” Higher mortgage rates are hampering Canadians’ purchasing power — and it shows.

In the Greater Toronto Area, realtors made 10,955 home sales in March — a 30% decline compared to the record-high 15,628 in the same month last year, according to the Toronto Regional Real Estate Board.

In March, national home sales dropped 5.4% from the previous month and 16% from a year earlier, when sales hit an all-time high in March 2021, according to a report released by the Canadian Real Estate Association (CREA).

“We’re seeing a shift where, instead of a house getting 20 offers in a bidding war — like it did a few months ago — we might be seeing two or three offers instead,” said James Laird, co-founder of Ratehub.ca and president of CanWise Financial mortgage broker. “The current prognosis is that we won’t see big month-over-month appreciations like we have throughout the pandemic.”

Predicting the direction of real estate is a notoriously difficult task, rife with room for error. Early in 2020, CREA forecast average home prices would drop as much as 18% because of COVID-19. Instead, the market surged more than 50%, with the average home price hitting $868,400 by February 2022.

Home prices are still on the upswing, despite declining sales. The average price for a house in Canada grew 11.2% year-over-year in March, according to CREA. Prices are still climbing in Toronto, where the average home price hit $1.29 million in March, up 19% from a year earlier. But the rate of growth is slowing: Toronto home prices in March were down about 3%, from $1.33 million, in February.

The rapid increase in prices has prompted some economists to forecast a pending market crash, where a collapse in real estate could take the entire economy down with it. Canadians are vulnerable to higher interest rates, some economists say, as household debt now sits at a record 186% of household disposable income, compared with 181.1% before the pandemic, according to Statistics Canada. 

But a more moderate consensus appears to be emerging among experts in recent weeks — one that suggests home prices will gradually cool while affordability remains a significant barrier to home-buying for Canadians. Instead of a rampant buyers or sellers market, Laird expects a “balanced” market in the coming months — where prices plateau instead of rising month after month.

Like most monetary policy decisions, higher interest rates present an economic Catch-22: the higher the cost of borrowing, the further demand falls as prospective homebuyers find it increasingly difficult to secure financing, while homeowners pay more on their mortgages.

“Anyone currently shopping for a home will be less enthusiastic to bid a high price when the cost to finance the home has gone up. This will remove some buyers from the market,” said Laird.

And economists say the rate hikes won’t stop there. In the coming months, the Bank of Canada is widely expected to raise the overnight interest rate until it reaches between 2 and 3% by the end of the year — the highest level in more than a decade. Bank of Canada Governor Tiff Macklem told reporters he is “prepared to be as forceful as needed” to cool surging inflation, meaning even higher rate hikes could be on the horizon. A recent forecast from CIBC anticipates the central bank’s overnight rate will reach 2.25% by the end of 2022.

Among those who will bear the brunt of rate hikes are potential first-time homebuyers who must pass the federal government’s “stress test” to qualify for a government-backed mortgage. Leah Zlatkin, a mortgage broker with LowestRates.ca, said the recent rate hikes represent a “turning point” for those prospective buyers.

Foch first noticed a change in the market in late February, just before the Bank of Canada’s first rate hike was introduced. “It was clear consumer buying power was going down. When rates go up, the market responds,” he said.

Source: The Star

Home Prices Will Peak This Spring After Rising Rates Prove ‘Game Changer’

Home prices will peak this spring, after more aggressive interest rate hikes from the Bank of Canada prove a “game changer” for the housing market, Royal Bank’s economics team predicts. Low rates have been stoking housing demand in this country for years, but now the tide is turning and interest rates will rise “significantly,” economist Robert Hogue said in a report this week.

Measures to cool housing in the federal budget, and separate policies planned by Ontario and Nova Scotia, are further reasons for home buyers to pause. “We now expect home resale activity to slow more quickly than previously anticipated and, perhaps more important, we see prices peaking this spring as market sentiment sours from extreme bullishness,” wrote Hogue in the note, dated April 20. “In this altered landscape, local markets could experience a mild price correction, partly reversing outsized gains recorded in the past year.”

The Bank of Canada has now raised rates to 1%, and RBC expects the central bank will add another 100 basis points over the next six months to reach 2%, slightly above the pre-pandemic level of 1.75%. “Canadians haven’t seen this large an increase in such a short period since the tightening cycle of 2005-2006,” wrote Hogue.

Expectations of a more aggressive rate path prompted RBC to cut its housing forecasts. It now sees home sales falling 13% this year and another 14% in 2023.

Prices will peak this spring and then weaken modestly over the rest of the year, Hogue said. RBC increased its price forecast for 2022 to an 8.1% rise, because of a stronger-than-expected start to the year. But it lowered its forecast for 2023, where it now sees prices falling by 2.2%.

“We think the national benchmark price could drop close to 5% on a quarterly basis from peak to trough,” said Hogue. Expensive markets such as Vancouver and the Greater Toronto Area, which saw the biggest gains, will likely see the biggest declines.

But it’s not all bad, said Hogue. “Rather than pose a major threat, we think rising interest rates are likely to bring welcome changes to the market — including more sustainable activity, fewer price wars, more balanced conditions, and modest price relief for buyers,” he wrote.

Source: Financial Post

Canadian Home Price and Sales Growth to Moderate in Coming Years, but Stay Elevated in 2022

Canada’s housing agency is forecasting home prices will moderate in 2022 as it becomes more expensive to borrow and buyers increasingly get priced out of the market. Home price growth already started to slow in March, particularly in places where real estate values have almost doubled over the past two years.

Canada Mortgage and Housing Corp. (CMHC) said the annual average home price could be as high as $782,400 at the end of 2022, or $740,700 at the lower end of its forecast range. That would be an increase of 13.7% or 7% over 2021′s average of $687,910, according to a new forecast. An increase in that range is lower than 2021’s 21% jump, a slowdown CMHC partly attributed to higher mortgage rates and unaffordable home prices.

But given that the national average was $796,000 in March, that means home prices are expected to dip this year. From February to March, home prices fell in low single-digit percentages in regions across Southern Ontario such as Brantford, Cambridge, Kitchener-Waterloo and Hamilton-Burlington, according to the latest figures from industry group Canadian Real Estate Association. The association said it was too early to say whether March was the start of a cool-down in the market.

The Bank of Canada has increased its benchmark interest rate from 0.25% to 1% to help combat soaring inflation. Although that is pushing up borrowing costs, CMHC said home prices would remain on an upward trajectory because demand for real estate is outstripping the supply of homes available for sale. “The impact from higher rates on housing demand and price growth will be muted in 2022,” said the report, adding that this imbalance was particularly pronounced in major cities such as Vancouver, Toronto and Montreal.

CMHC expects the benchmark interest rate to reach 2.25% by 2023 and predicts the average annual home price to remain flat or climb in the low-single-digit percentages over the following two years. The agency’s chief economist, Bob Dugan, was adamant that there would not be a price correction under the current economic conditions.

The CMHC home price forecast is similar to the real estate industry’s own outlook, which calls for a 14.3% annual increase in the average national price. CMHC expects the volume of home resales to decline between 4% and 10% year-over-year and said developers could match last year’s record for new home construction.

Source: Globe and Mail

‘It’s Growth Upon Growth.’ Royal Lepage Sees House Prices Rising in 2022, Despite Cooling Market

Just as house prices appear to be moderating, Royal LePage has revised its annual Canadian forecast upward to 15% from 10.5% nationally thanks to the strongest first-quarter results on record. The GTA fourth quarter forecast has been bumped to 16.5% from 11% that would put the median home price at $1.3 million by the end of 2022.

“It was such a strong first quarter beyond what we had anticipated,” said Royal LePage Real Estate Service CEO Karen Yolevski. “A home in the GTA increased almost 30% year-over-year in the first quarter. Even with some softening in the market we do think that we’re going to beat the original expectations.”

A 27.7% increase boosted the median price of a home in the GTA to $1.27 million in the first quarter with detached houses soaring 29.7% to $1.59 million. Condo prices also jumped 21.7% to $764,200 in the same period. That was higher than the Canadian average of a first-quarter 25% price increase to $856,900 for all types of houses and condos as demand outstripped supply in most markets, according to the Royal LePage House Price Survey.

Yolevski said the recent rise in interest rates could bring the Toronto area closer to a balanced housing market, “but we don’t think that’s going to change things dramatically.” Condos may not moderate at all as people may be returning to the city for work and to enjoy the culture and attractions that are available again in the core. The price point of condos is also attractive, said Yolevski. “If you’re looking to get into the market, they’re still a viable option for people, which should continue to fuel that demand, which could lead to less moderation in that asset class,” she said.

The city of Toronto saw slightly lower price growth than other parts of the GTA, up 21% in the first quarter to a median of $1.31 million. But that was not unexpected given the retreat to the suburbs during the pandemic.

In other parts of the GTA Brampton, Hamilton and Milton some of the highest gains, with median prices rising 30.5%, 32.4% and 32.3%, respectively. Among 62 markets surveyed in the report, only Thunder Bay showed a slight dip of .2% in housing prices. Charlottetown and Windsor-Essex were the only other two territories to showing less than 6% first quarter gains. But there were many Canadian markets, including the city of Vancouver, that showed growth of less than 20%.

Yolevski said that those probably reflect areas where there is less activity or that prices may have gone as high as the market can tolerate for the time being. Those markets might still be strong but it has been two years of many markets growing by leaps and bounds. It might take some time for demand to build again, she said.

“It is growth upon growth and sometimes you forget that it’s growing and prices have been increasing for quite some time now. At a certain point, you’re not going to continue to see 25%, 30%,” said Yolevski.

But even with a softening, Yolevski said properties that were attracting dozens of offers are still likely seeing competition among five or six buyers.

The Royal LePage survey reports median home prices based on proprietary information.

Source: The Star