What’s happening in Toronto real estate: Fall 2022
What’s happening with the Toronto real estate market?
Prices are continuing to drop from the February 2022 peak, but the decline is slowing down. Higher borrowing costs continue to have a downward effect on demand and prices as the Bank of Canada continues to raise interest rates in an attempt to cool inflation.
There were 5,038 sales in September, down -44.1% versus September 2021.
Prices are down -4.3% compared to a year ago.
Listings are down significantly. Lower prices are making sellers reluctant to list their homes. New listings are down -16.7% compared to September 2021 at 11,237. This is the lowest level of new listings reported for the month of September since 2002. The critical shortage of homes in the GTA continues to mitigate the downward pressure on prices from rising interest rates.
Many sellers who were looking to cash in on the real estate prices we saw six months ago are realizing they can no longer get the price they want and have pulled their homes off the market.
What’s happening in the Toronto Condo Market?
Condos are the hottest segment of the real estate market. The lower entry price of condos vs single family homes has made them a more popular option among home buyers due to rising borrowing costs.
Since the Bank of Canada began hiking interest rates in the Spring, condos have performed better than any other segment in residential real estate.
The condo market has become more balanced since the February 2022 market peak, but demand is still outpacing supply and prices are growing faster than the rate of inflation.
Condo prices are up. The average selling price of Toronto/GTA condos in Q2 2022 is up 12.2% year-over-year to $769,999. Year-over-year price growth was stronger in the suburban regions surrounding Toronto.
Condo sales are down. There were condo sales 5,687 sales in Q2 2022, a decline of 35.2% versus Q2 2021.
New listings are flat. New condo listings in Q2 remained flat at 14,316. Why is this important? More listings = more choice for buyers = more supply = more downward pressure on prices.
Toronto Rental Market: Are Rents Going Up in Toronto?
The Toronto and GTA rental markets are heating up. Higher borrowing costs due to rising interest rates are pushing many would-be buyers into the rental market. Growing competition among renters is creating extremely strong upward pressure on average rents.
Average condo rents are up significantly. Average one-bedroom rent increased by +20.2% year-over-year to $2,269. Average two-bedroom rent was up by +15.3% to $2,979.
Rental supply remains a major issue in Toronto and the GTA. Supply of available rental homes has decreased by -30% compared to Q2 2021.
The Toronto and GTA rental markets continue heating up.
What will happen with interest rates in Canada in 2022?
We don't have a crystal ball, but here's the best information we know so far:
Expect 2-3 more rate increases - two in 2022 and one more in 2023. The Bank of Canada stated that increases will be "front loaded" - this means the largest rate hikes come first and then get progressively smaller. Each rate increase earlier this year was in the 0.75 to 1% range. Expect the next rate hike in October to fall between 0.5 to 0.75%, and the next 2 hikes to each fall between 0.25 to 0.5%.
It typically takes 1 year for the economy to see the full effect of interest rate changes. Expect interest rates to stay high until at least late 2023 to early 2024.
Once the Bank of Canada feels inflation has stabilized to "normal" levels, they will begin cutting rates again. Expect rates to end up in the BOC's "neutral range" of 2 to 3%. (Higher than pandemic rates but lower than today's).
Today's rates are still historically low but don't compare 2022 to the 80's and 90's. In 1985, the average mortgage on a Toronto home was $87.3k. In 2022, it's $608.2k. This means that a 1% increase in interest rates today is almost 7x more impactful than it was in the 80s.
The national debt in Canada in 1989 was 60% of our GDP (Canada's national economic output). Today, national dept is 110% of GDP. This means that in 2022:
We owe more than the value we produce as a nation.
We're twice as indebted as we were in the late 80's.
What does this mean? Interest rates will continue to rise but don't expect 15-20% rates - that would collapse the economy.
Tip: Keep an eye on what the Fed (US Federal Reserve) does. Most of the time, the Bank of Canada follows what the US does in terms of interest rate changes because our economies are so linked.
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