Canada’s largest real estate market is cooling down at a blinding speed. Toronto Regional Real Estate Board (TRREB) data shows home prices fell in May as sales tapered to more historic levels. Falling sales and rising inventory have officially pushed the market into a “buyer’s market,” where prices traditionally begin to drop.
Greater Toronto Real Estate Prices Feel But Still Have Retained Big Gains
The composite benchmark price looks a lot cheaper, but there was a big catch for those comparing it. In May, Greater Toronto’s TRREB benchmark price fell to $1,261,800 but remained 24% higher than last year. In the City of Toronto, the price dropped to $1,230,900, up 20% over the same period. These sound like huge gains, but the numbers might sound smaller than you heard in April. There’s a good reason, the way the benchmark is measured has changed.
Buried in separate technical notes are changes to how the composites are measured across CREA. The benchmark is updated annually, but price fluctuations from the basket change are usually less than $10k on the difference. This time it was a little higher… okay, tens of thousands higher. The composite is much lower for TRREB (-$92,200) and the City of Toronto (-$142,400), but they’re using different measures. Prices didn’t fall that much, per se. How they are measured has just been drastically changed.
The more straightforward (but not quality-adjusted) measure fell across the region and stalled in the City. TRREB’s median sale price fell to $1,050,000 in May, down 4.4% ($48,000) from April. The City of Toronto fell to $980,000, flat over the same period. The market is showing signs of cooling, it’s just a little hard to see due to perfectly-timed changes to the methodology.
Greater Toronto Home Sales Fell 39%
Greater Toronto home sales have also dived much lower. There were 7,283 homes sold in May, down 9% from April and 39% from last year. This year, falling sales were primarily due to a lack of inventory — you can’t buy what’s not available. This time the board attributed the drop to higher interest rates.
Demand Has Dropped Into A “Buyer’s” Market
Greater Toronto inventory is rapidly improving as people warm up to selling amidst slower growth. TRREB recorded 18,679 new listings of homes for sale in May, up 1.4% from April and 0.5% higher than the previous May. Growth in inventory and falling sales are generally good for lower home prices.
Fewer sales and more inventory helped restore supply balance and then some. The sales to new listings ratio fell to 39% in May, down from 43.5% in the previous month. An SNLR between 40 and 60 percent is considered a balanced market, where demand flow is sufficient to maintain prices. Above 60% is a seller’s market where home prices are expected to rise due to tight inventory. Below 40% is a buyer’s market where home prices fall. Greater Toronto entered a balanced market last month and has already fallen through to a buyer’s market. If it persists at these levels, expect prices to fall.
Greater Toronto real estate is most definitely cooling, even though methodology changes make it harder to see. Home sales are falling to more historic levels, and inventory is rising to levels where it doesn’t seem so scarce. BMO had previously warned once rates increase, it’ll knock the speculative aspect out of the market, and inventory will climb. We might have just seen the start of a very different environment.