“Sanity” is a word that is being used now by people in the real estate industry when talking about where the home sales market is heading in the Greater Toronto Area (GTA) this spring and summer.
“The way that we started the year, with the increases that we saw in the first few months of January and February, everyone in the industry would agree that those prices were moving at unsustainable rates,” says Tom Storey, sales representative with Royal LePage Signature Realty.
The “sanity” that’s being referred to is a market that is coming back to reality, in which an offer date isn’t automatically producing 10 offers on a house, Storey says.
“Showings overall on listings are probably down about half from what they were earlier on in the year,” he says. “And I’ve been chatting with a ton of people that are seeing the sale prices in January and February and thinking, you know, what if I can get that, I might come to the market in April. Because of that, I actually think of ton of inventory is going to come to the market.”
Christopher Alexander, president of Re/Max Canada, says he also sees signs of “market relief,” with more listings coming up and fewer multiple-offer scenarios.
“There’s still really strong demand, but I think the calm people have been hoping for seems to be arriving. I am optimistic that we are going to have a really good spring,” he says.
Saying the past year or 18 months is a “new normal” is a big stretch, Alexander says.
“It has been an incredible run, almost like stars aligning, fundamentals coming together, all at the same time to create this perfect storm of extreme demand, and very low supply. And that’s what led to the big price appreciation.” Prices going up year-over-year by 20 per cent or even 10 per cent is not sustainable, he says.
In a recent statement, Toronto Regional Real Estate Board (TRREB) president Kevin Crigger said higher borrowing costs will have a “moderating effect” on home sales but rising immigration levels combined with a well-documented lack of housing supply around the GTA will counter the effect of rising mortgage costs. New listings dropped in February (6.6 per cent year-over-year), but by a marginally lesser annual rate than sales, which also points to a more balanced market, Crigger said.
Storey is projecting a levelling off in GTA housing prices this spring.
“Normally, April would be the average in terms of highest sales price every year,” he says. “I wouldn’t be shocked this year if it was February and March. I think the spring market came a little bit earlier than we expected.
“As the world opens up a bit and people are traveling … I actually think that’s a good thing for real estate prices in terms of cooling down a little bit because when people didn’t have a lot of other things to do they were very laser-focused on housing.”
Chris Kapches, president and chief executive officer of Chestnut Park Real Estate Limited, points to four factors in the GTA that will continue to keep housing prices high: households are financially sound, meaning people are less vulnerable to rising interest rates; immigration levels are ticking up; there is a lack of housing supply; and shifting household preferences, with more people working from home and looking for outdoor spaces, will continue.
Still, the overall market looks like it will swim through a period of more moderation. If the variable rate continues to go up this year, as has been projected, some people will be asking themselves if they should wait and see if prices relax, Storey adds. Or there are those thinking that, if rates are going to go up again, two or three times even, then maybe they should get into the market now and lock something in so they don’t have to worry about their payments in the future.
“I have had clients ask me if it is worth taking a 10-year fixed rate at this moment,” he says.
A market to keep an eye will be in the condo segment.
“I actually think condo growth will continue at a rapid pace,” Storey says.
According to TRREB, in the condo market, especially in Toronto, new listings were up in comparison to February 2021.
Condo values took a deep dive after the pandemic hit but are now recovering. The average condo price in the GTA today is around $1-million less than the average sales price for a detached property. Pre-pandemic, in February 2020, that number was $447,500, according to TRREB.
“The gap is bigger than it has ever been,” Storey says. “Specifically for condos selling under $800,000 we’re seeing a ton of action in that segment of the market because that is basically the most affordable option for many entry-level buyers.”
Lukas Krznaric, a sales representative with Royal LePage who covers the downtown Toronto condo market, says he believes downtown condos are undervalued in comparison with condo prices elsewhere in the GTA.
“Every deal I have been a part of to start this year has been a multiple-offer scenario on the listing side, and competing with other offers on the buying side,” he says. “Condos are getting significantly more money than they were at the beginning of the year and late last year. The inventory is historically low, and many buyers are returning to the downtown core again. The main reason is buyers are finally feeling confident the pandemic is over as businesses reopen, people are returning to work and not wanting to commute, and overall the city finally having life again.
“I don’t feel the condo market will ease up given the fact it did not go up nearly as much in the past two years and has a strong rental market to support current and future price growth.”
The exodus of people moving out of the downtown core during the height of the pandemic is now reversing.
“Heading into this spring, the market continues to be red-hot. Now more than ever we are encountering a market where there is simply not enough supply. The demand is there, the buyers are there, and they are rushing to get in before it’s too late, which is a smart move. While much was written during COVID about the mass exodus – buyers fleeing the urban core – that narrative was more fiction than fact. As COVID subsides, and the real estate market starts to normalize, it’s clear that the appeal of the downtown core is stronger than ever. People continue to want to live where they work and play, and the last couple of months of market results have proven that, for today’s young, savvy real estate buyers, the dream of a downtown lifestyle is a dream worth pursuing,” says Jonathan Goldman, president of Stafford Developments.
Storey says he has been receiving calls from clients who two years ago sold and moved to areas east and west of the GTA, such as Whitby, Guelph, Pickering or Milton, and are now asking where the city condo market is at.
“A lot of them are realizing they are going to have to come back, maybe two or three days a week, and I don’t have to tell you where gas prices are going,” he says. “People are really factoring in what the real cost of living is now because they’ve left the city.”
One thing to monitor over the coming months will be plans by Ontario political parties heading into a summer election to address the housing inventory challenges for the GTA.
Alexander references a report commissioned by Premier Doug Ford’s government and released in February that aims to build 1.5 million new homes over the next decade by increasing density in urban and suburban Ontario and cutting housing approval red tape.
“There’s been a lot of talk and now there’s actually some initiative to get moving on something, so that is encouraging,” he says.
According to recent figures from the Toronto Regional Real Estate Board (TRREB), tight market conditions in January resulted in a 28.6-per-cent year-over-year increase in the average selling price for all home types – to $1,242,793. Sales activity that month was down by 18.2 per cent compared with January 2021 (but the January 2022 result was still second best in history for the month).
In February, buyer competition remained fierce, and that average selling price jumped to $1,334,544, a 27.7-per-cent increase for all home types year-over-year. Sales activity was down year-over-year compared with the all-time record set in February 2021 but was still the second-best February result in history (9,097 sales compared with 10,929 in February 2021).
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