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Is the worst behind us? 

Since the peak in 2022, Toronto’s real estate market has been in a funk. Over that period of time, we’ve seen a few key themes emerge: 

  • A decrease in price, which later stabilized into a sideways market with typical seasonal patterns
  • A decrease in sales, which has made the market much more competitive for realtors
  • An increase in listings, which has given buyers more pricing power
  • An increase in distressed sellers, as indicated by power of sale listings 

  

 

This has translated to a large decrease in real estate industry activity, which is a significant change given the remarkably strong market seen in 2023.  

Real estate AI platform Valery.ca recently published some data from Statistics Canada that illustrates this reality in activity at the offices of real estate agents and brokers:  

  

The Greater Toronto Area (GTA) experienced a significant shift in its housing market in 2023, with a particular emphasis on the rental market due to ongoing affordability challenges. The year witnessed fewer home sales, primarily attributed to high mortgage rates and stringent mortgage qualification standards. 

Key highlights from the Toronto Regional Real Estate Board (TRREB)’s January release include:

  • A 12.1 per cent decrease in home sales compared to 2022, with 65,982 sales reported
  • The average selling price for all home types was $1,126,604, a 5.4 per cent decline from the previous year
  • The market saw an increase in rental demand, influenced by record immigration levels:  

Source

 

The GTA recorded less than 70,000 home sales in 2023. The last time we saw this number of sales was in 2008 when we had far fewer realtors. This has translated to a massive decline in the number of transactions per realtor. 

  

Jennifer Pearce, TRREB’s new president, expressed optimism for 2024. She anticipates a decline in borrowing costs and a resilient economy, which could lead to a rebound in home sales. 

I can’t find the data to support that our economy will be resilient, but we are seeing bond yields come down, indicating that borrowing costs will be reduced. This typically takes place at the forefront of a recession, which furthers my resolve that our economy likely won’t be strong this year.

There’s a solid chance that December and January mark the volume bottom (NOT PRICE) of this housing cycle, as the lowest months of the year on the tail end of the lowest year we’ve seen in decades. So, I guess it would be correct to say that we’ll see a rebound in home sales.  

 

The worst may be over for realtors as volume begins to recover, but there’s no way of knowing if it’s over for sellers. The fate of housing prices seems to rest exclusively in the hands of housing affordability, which is a dynamic function that includes house prices, interest rates, incomes and job stability.  

The easiest way to think about it is like this: people will start buying homes when they can afford to. I think we’re still a long way from that.

 

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