TORONTO – Prospective homebuyers saw clear signs of a cooling Toronto market in April as the region’s real estate board reported sales dropped by about 41 per cent since last year and 27 per cent from a month earlier.

The Toronto Regional Real Estate Board said Wednesday that April sales amounted to 8,008 across the region, down from 13,613 during the same month last year and 10,939 in March.

The board attributed much of the decline to homebuyers who are taking a break from the market to reassess how they will change up their strategy as interest rates climb and reduce their buying power.

“We’ve seen a change in the market … business is still happening, but it’s not as crazy,” said Despina Zanganas, a Toronto Realtor with PSR Brokerage.

“What I’ve seen is a lot of properties just sitting on the market.”

Months ago, it was hard for her to even secure a booking to visit some condos listed for sale, but now viewings have plunged. She often sees condos receive only one or two visits a day from prospective buyers, leading her to believe demand has slowed.

The slowing is most pronounced in the area surrounding Toronto known as the 905, which includes municipalities such as Mississauga, Brampton, and Markham. TRREB found the year-over-year decline in sales was greatest in the 905 last month and was particularly apparent in the detached housing category.

Sales of detached homes in the 905 totalled 2,732, a more than 47 per cent plunge from the year before, while the market’s 1,033 townhouse sales amounted to a 44 per cent drop. There were 491 sales of semi-detached homes in the 905 last month, a 40 per cent fall from the year before, and the 685 condo sales decreased by roughly 32 per cent.

April detached home sales in the city of Toronto, which is linked to the 416 area code, reached 868, a 34 per cent drop from a year before, and semi-detached home sales fell 26 per cent to 311. Townhouse sales for the month amounted to 335, a 42 per cent fall from the same month a year earlier, while 1,488 condos sold in April, down 35 per cent from the same month in 2021.

The drops in sales also weighed on home prices, which have been climbing steadily for much of the COVID-19 pandemic and were often fuelled by bidding wars and intense competition.

April’s average home price for Greater Toronto reached more than $1.2 million, down from about $1.3 million the month before.

However, April’s average price was still up by about 15 per cent from the year before, when the average price was more than $1 million.

Zanganas believes it is taking time for sellers to adjust to the market’s current conditions.

“A lot of these sellers are not accepting the reality of what’s happening, so they’re still overpricing their properties and expecting like $200,000 over,” she said

Last weekend, she viewed several homes, which had offer dates and didn’t yield the kind of bids sellers were hoping for.

The sellers have since increased the price, but a lot of these homes have been sitting on the market for about 20 days, far longer than they would have earlier this year or last, when conditions were heated and homes sold in little time.

TRREB previously predicted the average selling price across all home types would be more than $1.2 million by the end of 2022.

“It is anticipated that there will be enough competition between buyers to support continued price growth relative to 2021, but the annual pace of growth will moderate in the coming months,” said Jason Mercer, TRREB’s chief market analyst, in a release.

Price growth and supply are being closed watched because buyers and brokers spent the start of the year bemoaning a lack of listings and predicting that the spring market would turn things around.

April’s new listings dropped by about 12 per cent to 18,413 from 20,841 during the same month the year before, TRREB found.

Many clients have yet to list their properties because they are anxious about how the market will respond to interest rates, the forthcoming Ontario election, Russia waging war in the Ukraine and soaring inflation, said Zanganas.

“There’s so much in the air right now that people just are waiting to see what happens and they’re waiting to pull the trigger, but there’s definitely a lot of people who want to get in.”

• This report by The Canadian Press was first published May 4, 2022
• Picture by Blake Wheeler on Unsplash

One of Canada’s “Big Six” banks is declaring next year to be “The Year of The Hike.” National Bank of Canada (NBC) chief strategist (and poet-in-residence) Warren Lovely is calling the first interest rate hike in just a few months. He sees the Bank of Canada (BoC) making its hike in March, way ahead of schedule. Over the next year, the overnight rate is forecast to recoup much of the ground lost during the pandemic. However, Canada’s real estate bubble will prevent it from going much further. Since the country went all-in on housing, it can’t pursue more aggressive policies like healthier economies. 

The Bank of Canada Will Hike Rates In March

Canada is expected to wind up its overly easy monetary policy pretty fast. Next year, National Bank sees five full, 0.25 basis point (bp) hikes. The first will be in March, bringing the overnight rate to 0.50% about a month before the BoC forecast. The only other institution to call a hike that early is BMO. However, mounting inflation pressures might force others to adjust in the coming weeks. 

The remaining four hikes to the BoC’s overnight rate are forecast throughout the year. The second and fourth quarters are expected to see one full 0.25 bp hike each. In the third quarter, they see two full hikes. Canadians should see the overnight rate at 1.50% in one year, 6x the current level. That’s going to be a significant change. 

Canada’s Real Estate Bubble Will Prevent Rates From Rising Too Fast

In 2023, they don’t see much more happening due to Canada’s real estate bubble. The bank only sees one more rate hike, topping out the country at 1.75% — the lower bound for the neutral rate. A neutral rate is the level of interest where money is cheap enough to support full employment but high enough to control inflation. According to the BoC’s last estimate, the neutral rate for Canada is between 1.75% to 2.75%. 

The reason NBC only sees the rate rising to the lower bound is “interest-sensitive demand in the economy.” It’s a friendly way of calling out Canada’s real estate bubble, which is now so big it weighs policy decisions. “We don’t see the BoC as wanting to crush one of the main drivers of Canadian economic activity,” said Warren. 

National Bank sees interest rates rising earlier than most other forecasts but ending faster. For example, Scotiabank sees interest rates climbing in the second half of next year. However, they also see rates rising closer to the middle of the neutral range, ending hikes around 2.25% in 2023. A slower start but higher rise compared to the NBC forecast. 

While National Bank’s forecast is lower, it’s higher than the current rate, and that’s going to throttle credit. The forecast is the same level before the recession began, which had slowed home sales. It wasn’t until the end of 2019 when the BoC began providing mortgage liquidity injections, that the market picked up.

Daniel Wong. (2021, December 11). National Bank of Canada Calls 2022 “The Year of The Hike,” Sees Rates 6x Higher. Betterd Welling Website.