Canadian Housing Update 9: Downtown Toronto Falls Again
Downtown Toronto Falls Again, But Pricing is Starting to Look More Attractive
Once again, take this month with a grain of salt because December and January are the seasonally the slowest month for real estate sales. But once again, we see weakening data. More listings have come onto the market in late January and sales have not picked up meaningfully. A very notable drop was the median price in Central Toronto which decreased by more than 5% in January.
Key Data Points
Flat Prices - GTA -1% and VTA +2%
Longer Days on Market - Up GTA - 37 days and VTA - 38 Days
Fraser Valley (BC) jumps to 48 days on the market
Hamilton jumps to 48 days on the market
Burlington jumps to 44 days on the market
Ottawa jumps to 55 days on the market
Low Home Sold vs. Active Listing - GTA - less than 20% and VTA - less than 10%
*worse than COVID lows
Topics
Mortgage Rates Continue to Drop
Urban vs. Suburban
Spring Market
Mortgage Rates Continue to Drop
Mortgage Rates have fallen marginally lower in the last 30 days with the 5-year off about 0.10% and the 3 and 4-year is off about 0.20-0.30%. This has not appeared to help the housing market as home sales remain low.
Mortgage rates dropping will be a slow process because banks are slow to change on the downside. But as longer bond rates (5-year plus) continue to fall the mortgage rates will continue to come down. Normally the 5-year fixed mortgage rate is around 1.00% higher than the 5-year Government of Canada Bond. Anything outside of this range you are paying there is a short-term premium or discount. Right now, the 5-year government yield is 3.6% and the 5-year discounted mortgage rate is about 4.9% (for new purchases), this 1.3% difference is higher than the normal spread. History would suggest waiting until this closes a little more to lock in rates.
Even at this reduced mortgage rate housing does remain “unaffordable”, but with housing prices coming down things are getting better. If mortgage rates were to continue to drop, buying demand could pick up this year.
Urban vs. Suburban
Downtown Toronto has seen a rapid decline in prices. They are now approaching the lockdown lows of a median price of below $700,000. Currently, the median stands at $762,000 erasing any gains since the low rates of 2020/2021.
Zolo.com indicates much of this is in the Toronto condo and townhouse market. Where the drops have been very significant vs. 3 months ago.
The suburban market does appear to be holding in there strong in those same two categories.
This points to an odd market where urban prices are getting more comparable to closer suburban centres. This is a market dynamic to watch going forward as normally the high demand in urban areas will stabilize prices, but it appears for similar pricing people would choose closer suburban areas for the time being.
Spring Market
The Spring Market is around the corner, and this will be the true test of the housing market and people’s appetite to buy. Rates will likely be lower in the future and that should help push some buying. Many listings were taken off the market in the closing months of the year and they will likely end up back on the market this spring.
With every spring, supply will be high, and demand will need to come up to meet that supply or we could see further pain in the housing market. This is especially true in suburban areas, where houses sitting on the market have grown.
January Summary
Not much to report and there is nothing in the data that points to a recovery or a big drop. The affordability metrics today are very similar to early 2023 when the rates began to rise, in some areas this is cheaper, mainly in urban centres. Urban centres could see increased demand this year if prices or mortgage rates continue to drop. Suburban areas are still higher on the unaffordability metric and prices have held in better relative to their urban counterparts. It would not be surprising to see weakness in this area. Too early to tell for the year and it will be interesting to watch the increase in supply over the coming months.
Sincerely,
Justin, Konrad, and Merriel
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Content Sources: Bloomberg, Trading Economics, Yahoo Finance, BCA Research
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