Despite a recent mini-boom, real estate prices in the Greater Toronto Area are once again dropping. In July, property values dropped, according to statistics from the Toronto Regional Real Estate Board (TRREB). The first thing that comes to mind is rising mortgage rates, yet house sales continue to rise. Buyers are falling behind sellers as the number of available homes rises exponentially.
Toronto Real Estate Prices Dropped $20k In A Month
After a short rise, Toronto real estate prices are sliding again. In July, TRREB’s seasonally adjusted benchmark house declined 2.2% (-$26,000) to $1,158,000. The first positive unadjusted yearly growth in months was 1.3%. It verified reduced pricing in the month. Prices dropped less in July 2023 than July 2022, boosting annual increase.
Average pricing followed suit. July’s seasonally adjusted average selling price was $1,106,000, down 1.8% (-$20,300). Unlike the benchmark, the composition may make average selling prices more unpredictable. One notable expert prefers the average after recent benchmark revisions. The benchmark-average disparity has historically been exaggerated.
Toronto real estate saw more sales, but a lot more inventory
Higher interest rates would hurt sales, which would help bring prices down. Not true. In July, sales of 5,300 houses were up 7.8% from last year. Most likely, the 11.5% rise in new sales, which reached 13,700 houses, did it. More people are selling their homes, but more people are also putting their homes on the market.
The number of sales to new listings (SNLR) shows too many homes for sale at these prices. In July, the number was only 38%, which is below the level of a healthy market between 40% and 60%. This is now what is called a buyer’s market. That doesn’t mean that buyers are inappropriate, but it does mean that they are in charge of the reward. If this number stays the same, most experts think home prices will decrease.
Surprisingly, the SNLR is now even lower than last year, when prices fell even more quickly. But the market doesn’t make people talk about the same things this time. It’s an interesting change in attitude, which could mean that people buying when prices go down think it will only last for a short time.
RATES ARE AFFECTING THE MARKET
Rising interest rates do affect this market, but not in the way most people think. Most of the time, rising rates slow down home sales, but compared to last year, home sales are going up. Rates have made it harder for people to afford homes, so prices have had to go down to keep sales and supplies going. After 20 years of sharp gains, most buyers aren’t likely to be against a small drop.
The most interesting effect is how higher interest rates are changing supplies. With rates going up, it wouldn’t make sense for a lot of people to update. But all of a sudden, there are a lot more people who want to sell their land. This could be because investors own most of the homes in Canada.
Investors are worried that home prices won’t go up any further because bond yields are higher than rental yields. With the information we have now, we can’t tell if the buyers are investors, but changing conditions tend to change investment behavior.