Bank of Canada (BOC) reduced its policy rate on June 6th to 4.75%. Overall, the easing inflation, paired with mixed signals from the labour market, points towards further interest rate cuts by the end of the year. The upcoming inflation and economic data will be critical in shaping the Bank of Canada’s next move. While some are predicting that BOC’s cut will lead to a buyer’s frenzy, it’s too early to tell what the implications will be. Interestingly, so far I’ve seen more inventory appear in the last week and it’s due to some seller’s waiting for the June interest rate announcement to list. A sluggish economy paired with lower interest rates are counteracting forces for the housing market so it may just continue to be a balanced market in the coming months.
I recommend checking out Benjamin Tal’s (Deputy Chief Economist of CIBC World Markets) recent comments on what he expects moving forward.
The market in May
Inventory supply increased in all areas of the GTA in February on average by 16% from April. Sales (demand) slowed by an average of 8% across the GTA compared to April, leading to a more balanced market than earlier this spring. Freehold properties in Toronto are often sold in multiple offers, while condos typically sit on the market longer and rarely get too much interest. It’s important to note that the real estate market in May was extremely regional, even within city limits. What is true of one property type in one area, can be the complete opposite in a neighbouring area.
The absorption rate or months of inventory (M.O.I. for short) is deemed the most accurate way to pinpoint whether a market is in favour of sellers or buyers. Found by comparing home sales versus how many listings are currently on the market, M.O.I. essentially asks the question: How long would it take for every single property to sell if no new homes were put up for sale?
Low-rise (detached, semis & townhouses)
The detached market in the GTA cooled off slightly from earlier in the year. Most of the GTA was in a balanced market in May without much movement on prices. Durham Region remained the hottest region (1.99 M.O.I.) in the GTA with a slight seller’s market and still enough upward pressure on prices to see multiple offers on many properties. Toronto (2.43 M.O.I.), was close behind and still had upwards pressure on prices in some neighbourhoods, particularly at the lower price points. Dufferin Region (3.19 M.O.I.), Peel Region (3.35 M.O.I.) & York Region (3.57 M.O.I.) were in balanced markets without much movement on prices. Simcoe Region (4.79 M.O.I.), was in a slight buyer’s market with some downward pressure on prices. Most properties take longer to sell in Simcoe Region and seller’s often have to settle for below asking price offers.
Semi-detached homes were still in high demand with low supply in all areas of the GTA, in large part due to affordability, with an absorption rate below 2 months of inventory across the board. Freehold townhouses were in balanced market territory in May with absorption rates hovering around 2. 2 to 3 months of inventory without any significant pressure on prices and multiple offers being rare.
Condo apartments
Condo apartments were in a balanced market in May, without any signficant impact on prices.
As indicated by the months of inventory report, York Region (2.76 M.O.I.), Toronto (3.83 M.O.I.), and Peel Region (3.92 M.O.I.), are in a balanced market. Units that show well, have a good layout and an attractive price tend to sell relatively fast while overpriced units or ones that don’t make an effort at a good presentation tend to languish and often don’t sell. Condo townhouses are on the same path, as they are in a balanced market without any movement in prices in either direction.
The rental market
The GTA condo rental market has experienced a downturn, marked by the largest six-month decrease in rent prices in the past 15 years. According to real estate consulting firm Urbanation, the GTA reached a peak rental rate of $4.20 per square foot in the third quarter of 2023, equivalent to $2,929 for a 698-square-foot condo. However, the market has since seen a 7.4 percent decline in average condo rents.
Despite this decrease, year-over-year figures for the first quarter of 2024 show a 1.6 percent increase in average condo rents. However, this growth is considerably slower compared to the 13.3 percent annual increase recorded in the same quarter of 2023, representing the slowest pace of rent growth in nine years. Urbanation attributes this slowdown in price growth primarily to the influx of newly completed condos entering the rental market.
“While the market remains expensive with rents 15 percent higher than two years ago, renters waiting for some reprieve in the market have found it thanks to a temporary supply infusion from condo investors. This isn’t expected to last long, and rents should continue rising as construction falls short of demand,” Urbanation president Shaun Hildebrand said in Wednesday’s quarterly report.
Overall, while the recent downturn in condo rent prices offers a temporary relief for renters, the underlying market dynamics suggest that this reprieve may be short-lived. With ongoing construction falling short of demand, rent prices are expected to resume their upward trajectory. Renters and investors alike should stay informed and prepared for the fluctuations in the GTA rental market as it continues to evolve in response to these changing conditions.
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