Realtors and market watchers are settling in for a sluggish fall in the Greater Toronto Area, as prospective buyers remain affected by high borrowing costs and prospective sellers find themselves in a market that increasingly favours buyers, despite limited inventory.
Signs of a slowdown began to appear in late summer: Sales in the GTA were down 5.2 per cent in August from 2022, with realtors reporting 5,294 sales in the month compared to 5,584 the previous year, according to the Toronto Regional Real Estate Board’s monthly market watch report. The average price remained steady at just over $1 million. Housing starts were also down 14,900 units in Ontario in August, to 79,900, despite being up nationally.
“The market has weakened off since the spring more than average, and when I look ahead, we’re looking at a deteriorating economy, there’s no doubt,” says Derek Burleton, deputy chief economist at TD Bank. Burleton attributes the state of things to a softening in consumer spending and a job market that is beginning to weaken as unemployment rises. “I don’t want to overstate the extent of softening we’ve seen in the economy, but it does suggest that the market is going to navigate through the fall on a weaker footing, with continued decline in sales and prices,” he says.
Sellers are still adjusting to the new reality after prices peaked in 2022. Some seem determined to wait for their original intended price, as recently happened with a house Bosley Real Estate broker Davelle Morrison’s clients put in an offer on at the seller’s lowered asking price.
“As agents we have this expression, ‘Your first offer is your best offer,’ as in, if a buyer does give you an offer, the market is speaking to you,” she says. “Maybe you’re not listening, but the market is speaking to you and saying what they think the value of your home is. Sometimes people just don’t want to believe that.”
Given the softening in sales, the fall market is changing in favour of buyers, and Ayla Altilia, a sales representative at Declute Real Estate, says that buyers are already taking their time and finding increased opportunities.
“Many buyers are being more selective on the homes they offer on. We’re not seeing that same frenzy to jump on any home like we did in that peak market,” Altilia says. “The buyers are gaining a little bit more leverage to negotiate or add certain conditions on their offers.”
The slowing pace has also affected sellers’ plans: More people are choosing to sell their own homes first — with long closing dates — before looking for something new to ensure they know exactly what they will have available to spend, she says.
Realtors and economists alike credit the high cost of borrowing for keeping more people from jumping into the market. Uncertainty around rate hikes affected the late summer numbers, and although the Bank of Canada held its key interest rate at five per cent on Sept. 6, some would-be buyers are waiting to see what will happen at the Boc’s next rate announcement on Oct. 25.
“People’s affordability is just being blown away. They just can’t afford as much, which certainly keeps more people in the condo market. But you can see there’s still not a lot of buyers — and they’re not even buying condos,” Morrison says.
Still, the uncertainty around rates might prompt certain segments of buyers to get into the market sooner than later, particularly those with pre-approved mortgages who want to close on a home before their current rates expire, says Altilia.
Morrison notes that buyers in the market for homes over $3 million could be looking to complete their purchases before Jan. 1, when the city of Toronto’s new luxury homes land transfer tax increase comes into effect.
The condo market, meanwhile, has slowed significantly, the market flooded with listings from investors looking to offload properties as mortgage rates rise and their carrying costs go up.
“We have a significant investor market here for condos, and now a lot of those people want out,” Morrison says.
Altilia believes the condo market could also soon see owners of pre-construction condos with upcoming closing dates looking to sell their properties, given that they will now face significantly higher mortgage payments compared to when they first made the purchase.
Sluggish sales are expected to continue through the fall and into 2024 — a year, says Burleton, that could be “more of a test” as unemployment rates continue to rise.