The Toronto Real Estate Board always reports years over year comparisons. When we look at the year over year comparison for February, we do not see a clear picture of what is really happening in the market. The reduction in the number of sales and reduction in price is jarring! February 2022 was the apogee of the pandemic residential real estate market. The average sale price achieved last February, $1,334,544, remains, and will for some time, the all-time monthly average sale price record. Interest rates were at an all-time low; the Bank of Canada benchmark rate was a mere 0.25 percent and is now 4.50 percent. The pandemic had created a buying hysteria and, in conjunction with low mortgage interest rates, fueled the housing market. Buyers were experiencing FOMO, the emotional response to the belief that others were buying up all the housing and that important opportunities are being missed.
In March of last year, the Bank of Canada began its steady and continuous implementation of higher rates, and the resale market began to react. It is now important to look at the month over month comparisons, not just the year over year comparisons, which is how we have traditionally analyzed the data. If we were to look year over year, you would miss what is actually happening in the market right now. The months-long continuous decline appears to be over, a position supported by this February’s resale market data.
In February, there were 4,783 properties reported sold. Viewed from a historical perspective, it has been decades since a February market has produced such low volumes. However, viewed from a more recent perspective, these numbers are encouraging.
February’s sales results are the best we have seen in months.
February’s sales are up 6 percent since November, 54 percent since December 55 percent since January. Similar to the volume of sales, the average sale price has also shown improvement. The monthly sale price has stabilized and is showing signs of increase. In February, the average sale price for the greater Toronto area came in at $1,095,617. In June 2022, the average sale price fell to $1,145,804. Since then, it has continued to fall until January.
February’s average sale price was 5.5 percent higher than the average sale price achieved in January.
The reason for these positive market changes is mortgage interest rate stability. As buying history has demonstrated, the market re-engages once the consumer has determined that stability has been achieved. That is what we are starting to see. Buyer sentiment has changed since seeing stabilization. The benchmark rate is not expected to decrease dramatically until at least 2024, and thus a gently strengthening market can be expected for the remainder of 2023.
One problem that buyers will have to contend with will be supply. In February, only 8,367 new properties came to market, some no doubt being re-listed properties that did not sell at their initial list price. This number is more than 40 percent fewer listings than the 14,153 that came to market last February. If you remember, we were experiencing an extremely tight supply at that time. Although the total number of active listings was 9,643 at the end of the month, that is substantially too few to meet market demand. This speaks to two prevailing market trends. First, sellers are under no pressure to sell and, at least for now, continue to wait for a market improvement. Given that market improvement is now here, we should hope to see more supply over the next few months, which will increase sales volumes.
Demand is demonstrated by the length of time properties remain on market before being reported sold. In February, all properties sold in only 22 days, many in multiple offer competitions. Depending on location and property type, the average days on the market was in fact shockingly less. For example, all semi-detached properties in the greater Toronto area sold in 15 days, while all semi-detached properties in Toronto’s eastern districts sold in an eyepopping 11 days and at 106 percent of their asking price. This data indicates that the greater Toronto market, certainly on the demand side, is extremely robust but constrained by affordability, low inventory, and a slow adjustment to price expectations.
Very early March results indicate that the market’s performance is about 15 percent better than the sales volumes achieved in February. If this pace continues (supply permitting with no further hikes in the benchmark rate), then March should achieve approximately 5,500 sales, if not more. That means we will see sales numbers that have not been achieved since August 2022. The market is finally showing signs of moving in an upward trajectory.