Toronto home prices drop for fifth straight month in July: TRREB

For the first time since prices began plummeting earlier this year, the average price of a single detached home in Toronto was lower than it was a year ago, according to the latest report from the city’s real estate board.

The average price of a detached home in the GTA fell by 3.1 per cent to $1.36 million in July, compared with $1.4 million a year earlier as higher borrowing costs pushed prospective buyers to the sidelines, the Toronto Regional Real Estate Board (TTREB) said on Thursday.

It’s the first time single family detached homes have seen an annual drop since April 2020 when prices fell by 3.6 per cent, and a significant change from the 40 per cent annual price growth in the pandemic.

But the average selling price for all houses and condos in GTA was actually up 1.2 per cent compared to July 2021 to $1,074,754, largely due to an increase in prices for less expensive homes. That average is down more than $255,000 compared to the February market peak of $1.33 million, making it the fifth consecutive monthly decline.

Semi-detached homes, townhouses and condos all saw year-over-year increases at 4.9 per cent, 6.3 per cent and 6.9 per cent respectively. Condos saw a boom in the 905 region with an almost 12 per cent jump to $659,800.

“With higher borrowing costs people need to look into lower-priced homes, and condos represent a lower price point on average,” said Jason Mercer, chief market analyst for TRREB. “If you look at the GTA suburbs, condos offer an even lower price point, so it makes sense for people to look at those opportunities outside of the downtown if it means home ownership.”

Since March 2022, the Bank of Canada has been hiking the overnight rate to help cool inflation, with the biggest rate hike since 1998 announced on July 13 at one per cent — raising the bank’s benchmark rate to 2.5 per cent.

Sales dropped by 47 per cent in the GTA compared to a year earlier with new listings declining by four per cent on a year-over-year basis in July and they are expected to drop further for the rest of the year into 2023, tightening housing supply, he said.

“With low unemployment and wage growth not many people have to sell from a stress standpoint,” Mercer said. “People might not be getting the offers they want and are holding off from selling. As we see a drop in fewer listings, even with sales dropping, there will be a tightening in the market, impacting prices.”

Continued interest rate hikes remain the biggest shock to the market, he added.

It will take a year to 18 months to see how buyers absorb the interest rate hikes, said Mercer. Near term, the rate hikes will cause more people to wait on the sidelines resulting in sales and listings to drop. And strong population growth in the GTA will continue to push rent costs higher, forcing people to consider buying again if rent becomes too costly, resulting in limited supply, he added.

“As rent increases, it will spill over to ownership, pushing people to buy. That’s when we’ll see people coming to terms with higher interest rates and borrowing costs,” Mercer said. “When they come to terms with the conditions, we want to have an adequate pipeline of supply in place or market conditions will tighten up again.”

Kevin Crigger, TRREB president, is calling on the government to boost housing supply to alleviate the tightening market, in addition to helping existing homeowners afford the rising costs by suggesting longer mortgage amortization periods of up to 40 years on renewals.

“With the benefit of hindsight, it appears that the Bank of Canada’s rate increases started too late,” Crigger said. “Now we are dealing with outsized increases to curb generationally high inflation. The federal government must enact measures which will assist buyers facing affordability challenges in an inflationary environment.”

TRREB is also suggesting the stress test — when the bank ensures the buyer can pay up to two per cent higher than their current mortgage rate — be evaluated. Especially if the homeowner is looking to renew their mortgage, another stress test would be burdensome, the report says.

“Over the last few months we’ve seen a rapid acceleration of rate increases causing a lot of uncertainty for buyers and homeowners. It impacts the decision-making process and makes people wait on the sidelines longer than they have to,” Mercer said.


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By Jon Doe