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Is Toronto’s real estate market on the road to recovery?

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Similar to CREA’s data, the Toronto Regional Real Estate Board’s (TRREB) Marketwatch shows us one of the worst year-over-year drops in house prices on record. The average sold price declined by 17.9 per cent from February 2022. 

Many in the industry consider February and March to be more extreme data points, reflective of an outlier scenario or a market in a state of mania. 

As a result, the reliability of year-over-year comparison to peak months from 2022 has been brought into question, but nevertheless, the data points exist. 

It is likely that next month’s price decline could appear even more severe, as noted by CREA in their January stats report. 

Source: Daniel Foch

Increase in average price

 

On a brighter note, the average price increased in the GTA for the first time since August 2022. This could indicate that the market may have found its way off the downward trajectory and back into seasonal cyclicality, as prices typically rise from January to February. 

Buyer psychology seems to be patiently waiting for the market to turn – to stop its downward trajectory and begin a sideways or upward move. 

Industry anecdotes of buyers waiting on the sidelines are supported by a 48 per cent increase in mortgage applications, according to Rates.ca— yet the increased mortgage volume has not materialized into transaction volume yet. This could be an indication that the market is becoming a bit more responsive to the Government of Canada’s 5-year bond yields— the pricing mechanism for fixed-rate mortgages. 

With 75 per cent of mortgages going fixed-rate, it makes sense that the market rushed into falling fixed rates in January. 

 

Looking back to 2017

 

The most recent comparable correction in price happened in 2017 when house prices recoiled violently out of bubble territory due to the B20 stress-test mortgage policy and non-resident speculation tax (-14.3 per cent in March 2017-2018). 

During this same time frame, sales volume fell by 39.5 per cent, and the days on market doubled from 10 to 20 days. Real estate practitioners who were active in 2017 will remember the year as difficult, but not impossible, for the profession. 

Today, sales volume is down 47 per cent since February 2022. This means 4,245 fewer homes sold in the Greater Toronto Area this February, compared to the 9,028 that sold in February 2022. 

This transaction volume, when combined with decreasing prices, results in a total dollar volume of $5.24 billion worth of real estate changing hands in February 2023. By comparison, $12.14 billion worth of real estate changed hands in February 2022. Assuming a commission of 5 per cent, this means that the GTA real estate market distributed $607 million in realtor commissions in February 2022 and just $262 million in commissions in February 2023. 

 

Properties are taking longer to sell

 

Perhaps the most notable change in the TRREB Market Watch data set is the 200 per cent increase in property days on market. This means that properties are taking twice as long to sell as they did last year. 

The median property is spending 33 days on market – a slower absorption period than the average of the last three years. 2019 was the last year that had a February with higher days on market than the current market we’re seeing. 

The pace of the market is slowing, with average and median days on market comfortably reaching pre-pandemic heights during a typically fast-paced month on the forefront of the spring market. 

This is a sign that we’re entering a healthier, balanced market, with reduced fear of missing out and a lower risk of participants getting caught between a purchase and a sale. 

This slower market also allows for transactions to include financing and inspection conditions, a luxury seldom seen during the frenzy of pandemic real estate. 

 

Are bidding wars back?

 

The industry is full of whispers about bidding wars beginning again in Toronto’s real estate market. This seems to be true for some, but not all markets, supported by the return to a sale-to-list-price ratio above 100 per cent. 

While the average sale-to-list-price ratio across all markets is 100 per cent, some markets saw averages reach as high as 108 per cent (Toronto E08) or as low as 91 per cent (Toronto E06). 

Variances in demand and pricing strategy seem to be presenting very different markets on a per-neighbourhood basis, an opportunity for professionals to create value with local expertise. For comparison, the average sale-to-list-price ratio in February 2022 was 116 per cent, peaking at 147 per cent in Toronto E04.

It remains to be determined whether the increase in the sale-to-list-price ratio occurred due to a decrease in listing prices and a return to the “underpricing” and “offer night” strategies employed by the industry or whether we’ve actually entered a period of upward price discovery. 

There seems to be immense pressure on the spring market to support the loss reduction and risk mitigation of property holders, while also recovering sales volume to resurrect real estate commissions as a massive portion of Canadian GDP, which stagnated last quarter. 

 


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