There’s a Canadian real estate correction? Apparently no one told Toronto. TRREB data shows home prices didn’t just climb in February, but made a 5-digit jump. Prospective buyers with their buyer-feet ice cold in the snow, stood puzzling and puzzling—asking, how can it be so? It came without rate cuts. It came without speculators. it came without cheap credit, stimulus, or foreign buyers… Sorry, but happy Dr. Seuss month! Now let’s talk numbers.
Greater Toronto Real Estate Prices Made A Big Jump Last Month
Greater Toronto real estate prices are once again climbing, and wasting no time. The TRREB benchmark home rose 1.1% (+$12,400) to $1,091,300 in February. A typical home is still down 17.7% (-$234,700) compared to the same month last year.
Greater Toronto Real Estate Prices Are Off The Peak
The composite benchmark price of a home across Greater Toronto.
Source: TRREB; Better Dwelling.
No, that wasn’t a typo. Monthly price growth suddenly changed course, with prices rising 5-digits. It was the first increase since rate hikes began in March 2022, and the largest since a month prior. A single month increase of this size is unusual during any period. But it’s especially difficult to grasp when the narrative is that buyers need more leverage.
Annual Growth Was Lower Due To A Base Effect
Despite the increase, the annual growth rate continued to slide to a new record low. It’s important to remember this measures the change in price over a 12-month period. Last year at this time, one of the largest monthly increases ever was observed. This created a base effect, where failing to rise as much as last year reduced the rate. The implication is a drop last month, but that wasn’t the case.
Greater Toronto Real Estate Price Growth Is Decelerating
The 12-month percent change for the composite benchmark price of a home across Greater Toronto.
Source: TRREB; Better Dwelling.
Higher Prices With Falling Demand & Rising Inventory
Higher prices? The first thing that comes to mind is that inventory must be drying up and sales increasing, right? Not this time. The sales to new listings ratio (SNLR) is the industry’s preferred measure for determining a buyer, seller, or balanced market. The TRREB SNLR fell to 46.6% in February, lower than last month and nearly 30 points below last year’s frenzy. It’s a technically balanced market, with demand slipping faster than new inventory.
Easing inventory pressures are reinforced by other major demand indicators. Active listings, the total remaining inventory, climbed 38.1% to 9,643 homes in February. At the same time, sales fell 47% to 4,783 units. Fewer sales and more inventory aren’t traditionally fuel for higher prices. That leaves a shift in buyer psychology as the culprit.
A Shift In Buyer Psychology Driven By The BoC
It’s impossible to nail down what caused the shift without asking every buyer. Even then, what a buyer says can differ greatly from their reasons. We know. Your neighbor bought a half-dozen pre-sale condos to help with supply, not speculation. That aside, two major factors are contributing—mortgage rates and the Bank of Canada (BoC).
Fixed-term mortgage rates were falling at the end of last year, and the start of this year. That was the read by many agents as a sign that the bottom is near, and many assume falling rates mean higher prices. There’s a lot of reason to believe that, since even BoC research indicates lower rates boost prices. Though every market crash includes falling rates that fail to stop a downturn.
Bond yields have been climbing aggressively, reinforcing higher fixed rate levels. However, mortgage pre-approvals typically last at least 60 days, preserving the pullback’s impact. In fact, it likely contributed pressure since buyers face the threat of re-securing a higher rate.
The BoC outright stating they were pausing rates due to debt was also a big factor. Many investors read this as the central bank not having the ability to raise rates further. In other words, this was as bad as it gets. After all, household debt is the limiting factor. Buyers essentially adopted a “too big to fail” mentality. Kind of like 2008, but replace the major banks with your Uber driver.
Credit markets changed drastically in February. Forecasts of the BoC being forced to hike due to importing inflation from a weak loonie are just one factor. A read based on the major releases in January changed significantly over the past month. Though a casual market participant isn’t tracking bond markets, and credit flows.
Does this mean the correction is over? Not exactly, it doesn’t indicate much in terms of market direction. One month doesn’t make a trend, and prices never move in a straight line. Most corrections also face a period where a group of consumers on the sideline jump in and call a bottom.
Sometimes they’re right, and call the bottom—like Toronto homebuyers in 1996. Other times they learn that academics refer to this as the “return to normal” phase of an asset bubble. If it’s the latter case, it’s often followed by an even sharper decline as the floor falls out from the market.
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Very few houses sold is why the miniscule higher prices . People will start fleeing Canada soon . Some already have.
those smart enough have cashed out and ran 2 yrs ago.
Canada is the best country in the world. For many reasons:
1) Centrist-to-left politics where our ‘right’ isn’t really that bad (I’m purple btw)
2) Natural resources including farm land, timber, water.
3) Energy whether it be renewable or non-renewable
7) Strong economic fundamentals
8) Proximity to the strongest and most robust economy in the world (Note how I didn’t call it the largest, even though it is, the benefits are NOT purely the size).
Anyway, you can troll a bunch. Just say something ignorant just cuz but in 25 years, Canada will be THE place to live.
You’re completely gullible if you believe anything that TREB is saying. They’re desperate to keep the market moving or else they’re are all finished. Houses are sitting on the market past 60 days with no offers. They’re still trying to sucker people into buying even with high rates. So many sites have stopped construction.
A while back I believe BD was going to delve into the Canadian RE sector’s adjustment of its “benchmark” (and perhaps other) indicators? My recollection was that the previous “benchmark” indicator overestimated price increases while the amended iteration (just prior to the correction) underestimated price reductions. Apologies if I missed it. Could this change in ‘consumer phycology’ be as much about assumptions about, the treatment and presentation of data?
Goes against the usual “sky is falling” narrative from Better Dwelling so they gotta spin it somehow. Go back and read all the “OMG! The Deferral Cliff is Coming!” articles written by these guys back in 2020. That really played out as they expected.
They explained the deferral cliff and the Liberals responded. I gather you’re unaware that their coverage has been influencing policy, and they have literally been called to Parliament for issues?
Too many immigrants and slumlords creating artificial demand, and that doofus Sean Fraser is not afraid of the backlash from Canadians.
I noticed, atypically, some mansions for sale that sold less than asking. If you have mansion money, then credit is not a problem, but with so few sales, big ticket sales can really skew the average upward. Anyone else?
That jump is called death cat bounce.
The only reason prices went up slightly in toronto is because more of the higher end homes over 3 million sold.
This will continue throughout this year as buyers with dirty money launder their cash in the high price market thru shell companies .
Starting in 2023 there will be increased scutiny on who is the real beneficial owner of the shell .
Also, students are buying 3 to 6 million dollar homes co signed by rich parents.
The liberal government still allows foreign students to buy.
Another liberal loophole.
Correction. Dirty money will b more strictly controlled starting 2024.
Too much rum in jamaica. Lol
This is a disappointing level of analysis. This is a high level metric that in many ways is meaningless. If 1 large mansion had sold for $8m in all of the GTA for the month, the average price for the month would be $8m. Better analysis would have indicated that sales are at all time lows, total active listings are up, assessed the impact of competitive rental market, and a deeper dive on the homes that were sold including which area of the GTA to determine whether comparable prices have actually increased or decreased.
This is a disappointing criticism of the analysis, because a benchmark price isn’t the average. It’s weighted to eliminate a shift in the sales mix, eliminating the exact problem you’re complaining about.
That was the accurate take, and perhaps check out how an HPI is calculated instead of assuming an expert is wrong.
“TRREB data shows home prices didn’t just climb in February, but made a 5-digit jump. Prospective buyers with their buyer-feet ice cold in the snow, stood puzzling and puzzling—asking, how can it be so? It came without rate cuts. It came without speculators. it came without cheap credit, stimulus, or foreign buyers… Sorry, but happy Dr. Seuss month! Now let’s talk numbers”
I think the answer to this query is pretty obvious. In the words of Vulcan logic, eliminate the most logicL possibilities and the only remaining possibilities however slim, is the likely explanation. A.k.a. money laundering mechanisms at work.
Will our politicians ever are policy to combat this? History shows that to be a very slim possibility as their likely all benefitting on some level from this “fiscal” stimulus.
Prices most likely took this tiny jump because there are more 3 to 5 million homes selling.
A lot of these are being sold to students . Parents cosign.
Liberals should not have allowed this loophole for foreign buyers.
The benchmark isn’t impacted by a shift in mix, you’re thinking of averages.
The tone of the entire piece is cocky and arrogant.
1. “We know. Your neighbor bought a half-dozen pre-sale condos to help with supply, not speculation”.
2. “Buyers essentially adopted a “too big to fail” mentality. Kind of like 2008, but replace the major banks with your Uber driver”.
3. and the overall impression that the writer considers the shelter buyer as a business speculator. People need places to LIVE. So, if there aren’t many to go around, buyers eventually do have to pitch for units despite all the smart decisions by the BoC to “control demand”. Does it seriously take twenty economists and statisticians to figure out that money supply is not the ONLY factor that drives demand? Shortness of SUPPLY might be one too?