Elevated Borrowing Costs Taking a Toll on Housing Affordability - Distinctive Advisors Inc.

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December 6, 2023

Elevated Borrowing Costs Taking a Toll on Housing Affordability

High borrowing costs and uncertain economic conditions continued to weigh on Greater Toronto Area (GTA) home sales in November 2023.

The Toronto Regional Real Estate Board (TRREB) stated earlier today that sales were down on a year-over-year basis, while listings were up from last year’s trough in supply. With more choice in the market, selling prices remained basically flat year-over-year. This has been no more apparent than in the interest rate-sensitive housing market. However, it does appear relief is on the horizon. Bond yields, which underpin fixed rate mortgages have been trending lower and an increasing number of forecasters are anticipating Bank of Canada rate cuts in the first half of 2024. Lower rates will help alleviate affordability issues for existing homeowners and those looking to enter the market.

RESIDENTIAL STATS

In November 2023, GTA REALTORS® reported 4,236 sales through TRREB’s MLS® System – a 6% decline compared to November 2022. Over the same period, the number of new listings was up by 16.5%. On a seasonally adjusted monthly basis, sales edged up compared to October 2023, while new listings were down by 5.5%.

Home prices have adjusted from their peak in response to higher borrowing costs. This has provided some relief for buyers, from an affordability perspective.

As mortgage rates trend lower next year and the population continues to grow at a record pace, expect demand to increase relative to supply. This will eventually lead to renewed growth in home prices.

What is seasonal adjustment? Seasonality refers to a monthly (or quarterly) pattern that occurs in roughly the same manner from one year to the next, e.g., sales are highest in the spring and lowest in the winter each year.

HPI provides a price growth measure for a benchmark home with the same characteristics over time, allowing for an apples-to-apples comparison from one year to the next.

 

COMMERCIAL STATS

The “All Leasing Activity (Sq. Ft.)” chart summarizes total industrial, commercial/retail and office square feet leased through Toronto MLS® regardless of pricing terms.

The “All Sales Activity” chart summarizes total industrial and commercial/retail and office sales through Toronto MLS® regardless of pricing terms.

RESIDENTIAL CONDOMINIUM SALES STATS

The condominium apartment market is an important entry point into home ownership for first-time buyers. A better-supplied market has led to more choice for these buyers, resulting in more negotiation power and lower selling prices on average. A pause in price growth has helped mitigate the impact of higher monthly mortgage payments.

in the third quarter of 2023, the average selling price for a condominium apartment GTA-wide was $716,145 – down slightly compared to $720,628 in Q3-2022. In the City of Toronto, which accounted for approximately two-thirds of condo apartment sales, the average selling price was $736,566 – down from $750,087 in Q3-2022. While condo market conditions have become more balanced over the past year-and a-half, we will likely start to see a tightening in the market in the second half of 2024.

The GTA population is growing at a record pace and the consensus view is that we will start to see some relief in terms of borrowing costs beginning in 2024 and even more so in 2025.

RESIDENTIAL CONDOMINIUM RENTAL STATS

Strong population growth and high borrowing costs continued to drive demand for GTA rental housing in the third quarter. Would-be first-time buyers, who have seen affordability erode over the past year-and-a-half due to high mortgage rates, have remained in the rental market. Many new permanent and temporary residents have also turned to the rental market for housing. Renters can expect this trend to continue for the foreseeable future, underpinning the need for a sustainable pipeline of rental housing supply.

The supply of units for rent has increased at a faster pace than rental transactions over the past year. Many investor-owned units have been listed for rent, in response to very strong rent growth and, quite possibly, the actual or potential introduction of tighter regulations surrounding vacant units and short-term rentals. However, despite a better-supplied market, competition between renters has remained strong enough to sustain above-inflation rent increases.

In conjunction with the Toronto Regional Real Estate Board (TRREB) redistricting project, historical data may be subject to revision moving forward. This could temporarily impact per cent change comparisons to data from previous years.

Distinctive Real Estate Advisors Inc., Brokerage is pleased to present a recap of the latest market forecast release and November highlights from the Toronto Regional Real Estate Board (TRREB).

We’d welcome an opportunity to discuss the Elevated Borrowing Costs Taking a Toll on Housing Affordability. If you have any questions about our services, please contact our team.

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