Canadian Housing Update 15: Downtown Prices Crater
Central Toronto Median Prices Fell by Almost $100,000 in July and Downtown Vancouver fell by almost $200,000!
Central Toronto Median Prices Fell by Almost $100,000 in July and Downtown Vancouver fell by almost $200,000!
Quickly, downtown Toronto is erasing the gains it has made this year. The median home price in downtown Toronto rose from $756,500 in January to $998,000 in May, increasing 32%! But now has fallen to $858,000 which is a drop of 14%! Whoever said real estate was stable hasn’t lived through 2024 and we still have 5 more months in the year.
Key Numbers
Toronto Central Prices Down 15%
GTA Prices Down 5%
Toronto Suburb Prices Down 0-5%
Active GTA Listings Up 2-3%
Vancouver Central Prices Down 15%
GVA Prices Down 5%
Vancouver Suburb Prices Down 10%
Active GVA Listings Up 10%
Topics
Downtown Prices Crater
Supply Is Growing but Decelerating
Stock Market, Unemployment, and Interest Rate Risks to the Real Estate Market
Downtown Prices Crater
Whoever said real estate moves slowly has not been through 2024. From one of the fastest recoveries to start 2024, June and July wiped out 5 months of gains in Central Toronto. Even more alarming we lost 19 months of gains in Central Vancouver. In Toronto, this drop only compares to the initial COVID lockdown months. In Vancouver, this is a greater drop than in those months. To make matters worse we are leaving the “buying” season and entering into a time of the year when prices normally drop.
Toronto Central
Vancouver Central
Downtown real estate is more volatile month to month due to the price variation within the city. There are very high-priced homes and very low-priced homes and depending on the month you could see a higher or lower median value. Also, the seasonality does have an impact, shown by the consistent waves in the Toronto market but on average Toronto pricing has been flat since the end of 2020.
We would expect continued weakness into the end of the year in both Toronto and Vancouver due to macro factors, but given the desire to live in these cities, we would expect the downside to be limited in these two areas.
Supply Is Growing but Decelerating
Supply across all markets continues to increase but the pace has generally slowed in June and July (outside of the Greater Vancouver Area). This is a good sign that there may be a limit to the endless listings that are coming on the market. We still are all record highs and this would need to come down further but a decrease would show that there is not complete desperation from the sellers. Desperation is what brings on larger sustained decreases in price.
Greater Toronto Area
Greater Vancouver Area
While supply increased “Homes Sold” continues to fall which has created the downward pressure on pricing. This Supply/Demand has been present since 2022, with “Active Listings” moving up and “Homes Sold” moving down. This is during a time of high inflation, therefore the real value of houses has been falling.
We would expect supply to drop from here and the price drops may slow with those decreases. Although, there should be very little to move prices upward during this time of the year, expect flat to decreasing prices into December.
Stock Market, Unemployment, and Interest Rate Risks to the Real Estate Market
All three of these are large risks to the real estate market over the next year.
The stock market and the real estate market are very closely correlated more than many people may think. Decreases in the stock market reduce buying power and also weaken a buyer’s psyche. Since 2020 the stock market has been up and down but mostly up and buyers have been increasing down payments and have a growing buying confidence. The reverse would happen if you see a drop in the stock market. The second half of July was difficult for stocks as Big Tech went through its worst 2 week period since 2022. This is the US exchange but many Canadians' investments are tied to the US stock market. 2022 was one of the stock market years on record with the NASDAQ dropping 33%, in that year, GTA real estate dropped 20%.
It is difficult to purchase a new home when you are worried about your job and nearly impossible to purchase a home when you don’t have a job. Canadian unemployment jumped to 6.4% in June and this is expected to grow to 6.7% by early 2025. This will not only reduce potential buyers but might increase potential sellers. Strength or weakness in employment is usually the #1 factor in determining the direction of real estate prices.
Interest rates are declining but the decreases are making minimal differences. Even a 1% decrease in rates would just bring houses from Unaffordable to Less Unaffordable. This comes down to Canadians' ability to afford their costs. Mortgage costs are still too high for Canadians when you consider the other two factors. The first being inflation, while inflation has decreased to 2.7%, it was at ~8% in 2022 and ~4% in 2023. While prices are only 2.7% higher than last year they are 15-20% higher than 3 years ago. The second factor is wage growth. Mortgage costs increased by 30-50%, inflation has increased by 15-20%, but wages have only grown by 10-15% over the same period. We have less available money than before.
The above is the unaffordability factor. Wages are not growing fast enough to cover the increased costs. Therefore, unless rates were to drop drastically and then get filtered through the system (which takes years) unaffordability remains high.
Summary
The real value (price minus inflation) of homes has been decreasing since 2022, this would suggest a 10-20% decrease in real value. Expect further weakness in the Canadian real estate market heading into the end of the year. Interest rate cuts help, but they are not significant enough to lift housing prices. The factors of the stock market returns, inflation, and unemployment are potential negative risks to the real estate market and may continue to negatively impact pricing.
Justin, Konrad, and Merriel
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Content Sources: Bloomberg, Trading Economics, Yahoo Finance, BCA Research
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