Greater Toronto real estate prices are suddenly back to correcting, despite a mini-boom. Toronto Regional Real Estate Board (TRREB) data shows home prices fell in July. Rising interest rates are the first thought, but home sales are still climbing. Home buyers just aren’t able to keep up with sellers—new listings are climbing much faster than sales.
Greater Toronto Real Estate Prices Fell Over $20k In A Month
Greater Toronto real estate prices are back to falling, following a brief run. The price of TRREB’s seasonally adjusted benchmark, or typical, home fell 2.2% (-$26,000) to $1,158,000 in July. Unadjusted annual growth was positive for the first time in months, showing a 1.3% increase. However, it confirmed lower prices in the month. Annual growth only printed a gain due to a base effect, with prices making a smaller drop in July 2023 than July 2022.
Average prices produced a similar trend. The seasonally adjusted average sale price fell 1.8% (-$20,300) to $1,106,000 in July. Average sale prices can be more volatile due to a change in composition, unlike the benchmark. However, recent changes to the benchmark has at least one prominent analyst preferring the average. Historically, the gap between the benchmark and average sounds bigger than reality.
Greater Toronto Average Sale Price
The average sale price for existing homes across Greater Toronto, and the 12-month trend.
Toronto Real Estate Saw More Sales, But Way More Inventory
One would assume higher interest rates took a bite out of sales, helping to push prices lower. Not the case, with sales actually increasing 7.8% from last year to reach 5,300 homes in July. It was actually the 11.5% surge in new listings, hitting 13,700 homes, that most likely did it. Homes are selling at a higher volume, but so are the number of people listing their home for sale.
The sales to new listings ratio (SNLR) shows there’s a glut of inventory for these prices. The ratio fell to just 38% in July, below the threshold of a balanced market (between 40-and-60%). By definition, this is now a buyer’s market. That doesn’t mean buyers are going ham, but they’re in control of the incentive. If the market maintains this ratio, analysts generally expect home prices to fall.
Surprisingly, the SNLR is even lower than last year, when price drops were even sharper. However, the market doesn’t seem to be triggering the same type of discussion this time around. It’s an interesting change in sentiment, potentially indicating buyers piling into falling prices see it as temporary. That can be a problem for the Bank of Canada (BoC) down the road, but that’s another article. Worth mentioning, though!
Rising interest rates are certainly playing a role in this market, but not the one most expect. Rising rates typically cool home sales, but home sales are climbing compared to last year. By rates limiting budgets, home prices have had to come down to keep sales and inventory flowing. Most sellers are unlikely to be opposed to a mild pullback, following sharp gains for two decades.
The most interesting impact is how rising rates are helping to shape inventory. It would be uncharacteristic for a surge of homeowners to upgrade with rising rates. Yet, there’s suddenly a lot more sellers looking to unload property. This may be a reflection of Canada’s investor-dominated real estate market.
Investors are looking at stalling home price growth, with bond yields higher than rental yields. It’s impossible to determine if the sellers are investors with the current data, but shifting incentives tend to shift investor activity.