Home prices in Toronto fell 16% in 5 months. The ‘historical correction’ is not over yet – newsdubai
Canada’s most expensive housing market is now in the midst of a historic downturn, but the country’s real estate sector has yet to bottom out as the market continues to adjust to rising interest rates.
Benchmark home prices in Toronto have fallen for five straight months – the biggest decline in five years – by a total of 16% since March. In August alone, the benchmark price for a Toronto home fell 2.8% to C$1.12 million (about $856 million), according to new data from the Toronto Regional Real Estate Board.
The Bank of Canada aggressively raised its benchmark interest rate to 2.5% in July – the highest rate hike seen in 24 years – in an effort to combat Canada’s highest inflation in four decades. That followed a string of rate hikes earlier this year from a pandemic low of 0.25%.
Higher interest rates have affected people’s ability to buy homes and have driven up the costs for existing homeowners facing remortgage. The number of homes sold in Toronto fell to 5,627 in August, down 34% year-over-year. Canada’s central bank is likely to raise interest rates again by three-quarters of a percentage point next week, according to Bloomberg data, meaning Canadian house hunters will continue to confront higher borrowing costs and price out some buyers.
Refrigerated market
Toronto’s housing slump could continue as higher interest rates take a toll on the real estate market nationwide.
“The pandemic may not be over, but the pandemic housing boom certainly is,” wrote Robert Hogue, assistant chief economist at RBC bank, in a recent report. Canada’s housing correction “is now running rampant. In Toronto and Vancouver, the decline in activity is fast becoming one of the deepest in the past half century. Prices are sliding rapidly, and the exuberance that permeated… is being replaced by fear, ” he wrote earlier in August.
The Toronto Real Estate Board is now asking for a review of ‘stress tests’. Mortgage lenders in Canada are required by law to perform these tests on new borrowers to determine if they can handle higher interest rates.
Housing activity nationwide will also continue to cool, given expectations of further rate hikes this month and in October, with Hogue predicting the market won’t adjust to the higher prices until early 2023, “placing the bottom for prices around the spring ” next year.
National benchmark house prices — the sales price of a typical house in a particular area — are likely to fall 12% from their recent peak, and the number of home resales is likely to fall 23% this year and another 15% in 2023, he said.
Provinces such as Ontario and British Columbia – where Toronto and Vancouver, Canada’s most expensive cities for housing, are located – could register “peak-to-trough” [price] decline of more than 14%,” he said. “The frenzy that took the Toronto market to unprecedented heights this winter is completely gone. Activity has dropped to the slowest pace in [over] 13 years, [excluding] April 2020 lockdown,” Hogue said, referring to the city’s housing activity in July. Buyers will “remain on the defensive in the coming months as they deal with rising interest rates and poor affordability.”
However, some Toronto residents are taking advantage of the lower home prices. The Danish Property Agency’s data from August showed some signs that the market disruption is easing. Last month, real estate transactions in Toronto grew 11% from July on a seasonally adjusted basis.
The ratio of home sales to new listings grew compared to the past three months, indicating that demand and supply may be beginning to balance, the real estate agency said.
Despite Toronto’s recent decline in home prices, the city still faces a severe supply and affordability crisis. Covenant House Toronto, a homeless shelter for at-risk youth, has seen the number of university students living in the building rise to a third of its residents, compared to 26% in 2019. “It’s very much a trend that has reflected affordability issues with rental housing in Toronto,” Mark Aston, the shelter’s executive director told Bloomberg.
According to the University of Ottawa’s Smart Prosperity Institute, a Canadian think tank, the province of Ontario needs an additional 1.5 million homes to be built in the next decade to meet housing demand. About half of the demand will come from Toronto and two adjacent regions; Toronto alone lacks at least 259,000 homes.
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