The Toronto and area residential resale market experienced a slow endof 2022, a continuation of the pattern that became clear and established as interest rates began to rise in March.As the Bank of Canada continued its strenuous benchmark rate hikes, sales and average sale prices have declined. Once again, no surprises
forDecember!December's sales results were more than 48 percent lower than the 6,013 properties reported sold last December. Since March, the number of monthly sales have decreased by more than 70 percent. It should be noted, however, December's sales results have historically been the slowest month of any year.In addition, the trajectory of average sale prices in Toronto and area has been similar to monthly sales.
Last December, the average sale price was $1,157,877. December 2022's average sale price is almost 10 percent lower than last year. More significant is the dramatic tumble in prices since March. At the end of the year, prices are $247,455, or almost 20 percent, lower than they were in March. In the City of Toronto, primarily due to the preponderance of condominium apartment sales, the average sales price was even lower in December, coming in at $1,015,000.
The underlying driver responsible for the current marketplace is affordability. Even with a 20 percent decline in average sale prices since March, the even more accelerated rise in mortgage interest rates has made Toronto and area homes unaffordable, extremely unaffordable.
The National Bank reports that a mortgage on a typical home now takes up to 67.3 percent of a household's income to service, the highest level of debt service since 1981. The Bank's analysis indicates that to own a non-condominium home in Toronto, households need an annual income of $273,549 and many months of savings to have sufficient down payment funds to afford a "representative home" priced at $1,351,000. In December, the average sale price for detached properties in Toronto was $1,627,000. Semi-detached properties came in at $1,162,000. For a representative condominium apartment priced at $738,000, households need $174,466 in annual income.
There is no good news in December's resale data. Not only are sales and prices falling, but further declines can be expected. Unaffordability has forced even would-be buyers to downscale their expectations based on their ability to qualify and then service the debt they will be assuming. As a result, gone are the days when Toronto and area's average selling price exceeded list prices by as much as 120 percent. In December, all properties reported sold came in with a sold price of 98 percent of the asking price. In the City of Toronto, it was lower at only 97 percent. In some trading areas, ratios were even lower. Even Toronto's powerful eastern trading districts, which have not seen sales to list price ratios since 2008 below 100 percent, came in at 99 percent. It must be noted that the asking price on listings, have for the most part not been artificially lowered to entice multiple offers at the table.
Active available properties have increased over the last few months, a typical result of declining sales but not excessively. In December, 8,692 apartments, detached, semi-detached, and townhouse were available to buyers, 169 percent more than the 3,231 active listings available last December. We still feel that there is a shortage of listings to show active buyers, which could be keeping average selling prices stable at the moment.
Even though 2022 started with three strong months, January, February, and March, the total number of annual sales was shockingly low. Only 75,140 properties changed hands, even less than the 78,017 sales reported in 2018 when legislative changes brought the resale market to a halt. Beyond 2018 it's necessary to go back almost two decades to find a year when sales were as low.
Given the correlation between mortgage interest rates, sales, average sale prices, and affordability, the immediate future of the Toronto and area residential resale market are self-evident.
The market will remain sluggish well into 2023, especially since the growth in Canada's employment numbers will most likely lead the Bank of Canada to further increase the benchmark rate. As a result, average sale prices could very well continue to decline. Unfortunately, buyers are constrained by a need for more affordability, given prevailing economic factors. Buyers can't pay what sellers expect (hope?) to achieve for their properties, which ultimately will bring prices down. There is no way of determining how low average sale prices will fall. It would be easier to forecast if the Bank of Canada's position on rates was final. A further 10 percent decline from December's average sale price of $1,051,000 is a reasonable estimation. It will be the beginning of the latter half of the year, and perhaps even the end of 2023, when the residential resale market begins to show signs of growth. It will be quite some time before we see the return to the hype experienced in Toronto'spandemic market; fuelled by incredibly low borrowing rates, and an extreme need for housing.