Higher interest rates have taken a bite out of the Toronto area’s seemingly insatiable appetite for real estate, with sales and home prices continuing to soften in April.
Prices were still climbing on a yearly basis last month — up 15 per cent over April 2021, according to the Toronto Regional Real Estate Board (TRREB) on Wednesday. But the average selling price of a house or condo dropped 3.6 per cent between March and April — the second consecutive month-over-month decline.
The average selling price for all types of houses and condos was $1.25 million in April, compared to $1.3 million in March and $1.09 million a year ago.
Sales last month were down 41.2 per cent year over year, tumbling 27 per cent from March — an unusual trend in spring, which is traditionally the busiest season in the real estate market.
Realtors have been reporting fewer bully offers and bidding wars as the record low interest rates that fueled housing prices during the recession have begun to rise again. The Bank of Canada hiked its overnight rate from 0.25 per cent to 0.5 per cent in March, then doubled it again to one per cent on April 13. Economists had been expecting the central bank’s overnight rate to rise to 2.25 per cent by the end of the year. But inflation, which has risen to 30-year highs, has prompted speculation that the key rate will go higher.
Between higher mortgage costs and the rising cost of everything from food to gas, homebuyers are pausing to evaluate just how much they can afford, says the real estate board. Realtors say they have been seeing fewer showings in many areas of the GTA for more than a month, although some homes and neighborhoods continue to draw competition.
The real estate board found sales declined most in April in the 905 region surrounding the city. Sales of detached houses that saw the most price escalation in the last two years plunged 47.2 per cent year over year in April. Those homes saw a 34 per cent sales decline in the city of Toronto.
The average selling price of a detached house in the suburbs was $1.26 million in April, compared to $1.63 million in the city of Toronto — a 17.5 per cent annual increase region-wide.
Although condo prices slumped for much of 2021, the real estate board found those home prices continued to rebound in April, rising 14 per cent across the GTA. Condo prices in the 905 zone rose 18 per cent annually, compared to about 13 per cent in Toronto. Sales were also down 34.5 per cent in the city, compared to a slightly lower 32.2 per cent drop in the 905 areas.
The real estate board has suggested that because they cost less than single-family homes, condos may weather the new higher-rate environment better than other housing types.
The Toronto-area market remains tight enough to still experience annual growth, said Jason Mercer, the real estate board’s chief market analyst. But with more homes listed and less competition among buyers, “the annual pace of growth will moderate in the coming months,” he said.
New listings were down 11.7 per cent year over year in April and active listings, which includes those homes that didn’t sell the previous month, rose 12.3 per cent.
In a recent interview, Royal LePage CEO Phil Soper told the Star that when home sales slow, it’s typical for a gulf to open between buyer and seller expectations. Buyers are quick to recognize that a cooler market could spell opportunity for them. Sellers don’t want to believe their homes are worth less than those of their neighbors who sold for more.
“They’re at each end of a long dirt street and neither one is willing to draw,” he said. That results in fewer sales.
Even though sales have dropped, the GTA continues to suffer from a lack of housing, said real estate board CEO John DiMichele. He said that immigration continues to increase the population and warned that decision makers have to guard against fueling demand.
“In the absence of new supply, we will build a significant amount of pent-up demand that will need to be satisfied in the not-too-distant future,” he said.
While the resale housing market has slowed the last two months, new GTA condos sold at record levels in the first quarter of this year, according to a report released Tuesday by market research firm Urbanation.
It found sales of new developments were 55 per cent above the same period last year and 60 per cent above the 10-year average. The inventory of unsold condos also hit the lowest level in 18 quarters, according to a report from market research firm Urbanation.
But with construction costs rising faster than prices, as well as supply chain issues and development charge increases, there are challenging times ahead for the new-condo sector, warned Urbanation president Shaun Hildebrand.
“Expect developers to begin scaling back on new launches in the second half of the year,” he said.
Urbanation found there were already signs of price resistance in downtown condos in the first quarter, with those units showing slower price appreciation than condos in the Toronto suburbs of Scarborough, Etobicoke and North York, and the 905 communities outside the city.
New condos downtown continue to be the costliest and increased by 14 per cent to $1,637 per square foot, on average, in the first quarter. But suburban units appreciated 23 per cent in the same period, with units in the inner suburbs climbing to an average of $1,244 per square foot and, in the 905 areas, selling for an average of $1,073 per square foot.
“Demand is bumping against price levels and now higher interest rates, which should lead to slower rates of price appreciation,” said Hildebrand.
Correction – May 4, 2022 – This story has been updated.
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