Sales Summary
Sales for May on TRREB were 24% higher than in May of 2022. This is the first month this year that sales were higher than the same month in 2022. At 9,012 sales this will be the biggest sales month in 2023. How do we know? April, May, or June are normally the biggest sales months of the year. But in early June the Bank of Canada raised its prime rate to 4.75% (up 25 basis points). The Bank’s prime rate had remained at 4.5% since January of this year.
In previous posts, we had stated that it is not just the level of interest rates but ‘rate certainty’ that impacts buyers. With the rate fixed in January, we saw a slow but steady improvement in the real estate market. With this latest increase and a fear of another 25-point increase over the summer, some buyers are moving to the sidelines. The Market had already showed signs of slowing in late May and this rate increase will just add to the soft market.
Given this backdrop, where are real estate prices headed? The answer lies with the number of new and active listings. New Listings are 19% lower than the same month last year and active listings are 23% lower. All with sales being 24% higher than the same month last year. Potential sellers have decided that they don’t need to lower their asking price or even offer their property for sale. But the pressure of higher mortgage rates and costs will soon force some people to sell. Most Canadians take out a five-year fixed rate mortgage when they buy. On average, 20% of these mortgages come up for renewal each year. Mortgage rates only began to increase a year ago. We expect to see more forced sales in 2024 unless the Bank of Canada begins to lower its rates.
See the Graph below which tracks the Bank of Canada Overnight Rate, Sales, and New Listings by month over the last twelve months.
TORONTO REAL ESTATE: 12 MONTHS AT A GLANCE
Source: Toronto Regional Real Estate Board
TAKEAWAYS
- It is not the level of interest rates that is impacting sales. If that were true, then June followed by July and August of 2022 would have been the largest sale months.
- When rates remain fixed for a period of time, then buyers get more confident, and more sales occur. See March through May of 2023.
- The Sale-to-New List Ratio has remained in favour of Sellers since February, suggesting that few Sellers have been forced to sell because of financial need, and most are prepared to sit and wait.
TORONTO MLS SALES-TO-NEW LISTINGS RATIO
Source: Toronto Regional Real Estate Board
RENTAL COMMENTARY
Over 2200 condos were leased in the Downtown and Humber Bay markets in May. Both rentals and average prices were up slightly from April. The result is that there is less than a one month’s supply of condos to rent and that prices are up $25-50 per month from April.
Last month we looked at the cost of a parking spot and sales data showed that it increased rent by $300 per month. This month we looked at a second bathroom in a two-bedroom condo. Sales data showed that it increased the rent by almost $500 per month.
