CONTENT FROM SPRING REAL ESTATE REPORT
Lack of inventory is the main underlying storyline in the Greater Toronto Area (GTA) real estate market coming out of the winter months, and with an anticipated increase in demand, and competition among buyers, market watchers project renewed price growth.
Part of the reason for growing demand, especially among first-time buyers, has been a red-hot rental market, as the average rents start to get closer to the cost of ownership, says Toronto Regional Real Estate Board (TRREB) chief market analyst Jason Mercer.
Mercer points to lower inflation and uncertainty in financial markets resulting in medium-term bond yields trending lower, which will impact interest rates, as another storyline to watch. In March 2022, the Bank of Canada started aggressively raising interest rates.
“Mortgage rates will follow that trend in the bond market, with a bit of a lag,” Mercer says. “We are anticipating seeing borrowers getting better terms in the second half of this year. That will help with affordability and we will see an increase in sales. We will see tighter market conditions and renewed upward pressure on prices, albeit more moderate this year.”
New listings in the GTA in March 2023 were at 11,184, down 44.3 per cent compared with the previous March. The inventory squeeze in the GTA is especially being seen with low-rise, boutique-type buildings in the more popular neighbourhoods, says Christopher Bibby, a broker with RE/MAX Hallmark Bibby Group Realty.
“I am seeing extremely low inventory levels,” says Christopher Alexander, president of RE/MAX Canada. “It’s like a logjam in the marketplace right now. There’s that quote from the Fraser Valley Real Estate Board president, ‘You can’t sell what you don’t have.’ That rings so true especially for us in Toronto, where I’m sure there are a lot of people that would like to move right now but there’s just not the product available to stimulate the activity we need to release that logjam.”
Bibby also points to signs of optimism and improved consumer confidence as the market starts to return to familiar footing. He sees a positive psychological impact on the market from the March announcement by Bank of Canada that it would hold interest rates at 4.5 per cent. People had been beaten down over the year by steadily rising rates, rising inflation and negative real estate market news.
Buyers are now emerging, Bibby says. Multiple-offer scenarios, especially in certain central neighbourhoods, are becoming prevalent again, although the market hasn’t returned to the red-hot conditions of 2021.
“The activity is there but the product isn’t,” Alexander says. “That is discouraging for a lot of people. They’d love to move but they just can’t find what they want.
“More people are looking at what’s available on the market; they are looking at what it costs to make a move up. If you’re in Toronto and you have a detached home, probably worth around $2-million, maybe $2.5-million, to get something that would be considered a move up you are looking at probably $4-million. Unfortunately, most of the product out there now you wouldn’t normally associate with a $4-million home.”
Prices have become so expensive and mortgage rates are still high, historically speaking, so carrying costs are tremendous. Alexander says it’s created a “trickle-down and trickle-up effect” where people are feeling trapped. There is not enough choice on the market and what is available doesn’t add up to the value point.
Optimism is returning to luxury market homes, such as 36 Birch in Toronto, as well as entry-level condominiums.IMAGE COURTESY OF NORTH DRIVE INVESTMENTS
TRREB reported that sales across the GTA were down 36.5 per cent compared with March 2022. Buyers and sellers are still confused or somewhat concerned about where the market is, especially when they look at dramatic year-over-year drop-offs, as opposed to month-over-month prices and number of transactions. Those are up when you look at TREBB data. The average price in the GTA in March 2023 was $1,108,606, down considerably compared with $1,298,666 in March 2022, but up from the average price in February of this year, which was $1,095,617. There were 4,783 transactions in February, and 6,896 in March.
Mercer looks to the need for more purpose-built rental projects such as 2Fifteen in Toronto’s midtown as necessary with the low number of homes for sale compounded by population growth, on the back of more immigration.
Due to year-over-year price declines in some markets, more property owners have been leveraging a robust rental market and leased their properties.
2Fifteen sets a new standard for luxury rentals in the city, with amenities such as an outdoor dining terrace with barbecues, 24-hour concierge, fireplace lobby lounge, games room, private dining room, rooftop terrace with firepits, and men’s and women’s spas with saunas. There are 177 suites ranging from 580 square feet to 2,150 square feet, of which 50 per cent are rented.
“We have definitely seen the market continue to be extremely hot in terms of rentals,” says Bryan Levy, chief executive office of DBS Developments, the company behind the project. “Typically, the winter is always a little slow for the industry with people reluctant to move but we’ve definitely seen a resurgence of people looking this month in particular, not just at this property but at all of our other rental properties as well.”
Levy says the unaffordability of ownership is driving interest in rentals, a market Alexander describes as “horribly competitive.”
A high interest rate environment and mortgage stress tests make it more challenging for people to get into the housing market. The fact that everything is included in one rental fee is appealing to people, Levy says.
“For now, I don’t see a drastic shift away from the straightaway rental market because economically it just makes so much sense for people to go into a rental at this point,” he says.
Still, a mood of “cautious optimism” is being seen in the luxury sales market, says Jana Korim, head of sales at North Drive Investments, the developer behind the 36 Birch and 10 Prince Arthur lower-level boutique projects. Multiple-offer scenarios are emerging as a familiar pattern this spring and are increasing in frequency.
Korim has also noticed a marked uptick in entry-level condominium sales, despite the hikes in interest rates.
“As always, low supply and pent-up demand is driving all of this, but as long as these patterns continue, a certain reliable stability is established and assumed, which then feeds back into confidence,” she says. “Rinse, repeat, and barring any unforeseen major upsets in the world at large, we have ourselves a swift and strong Toronto market this spring.”
A more optimistic spring is something Bibby has been waiting for a while.
“I think the most notable thing is this is our first real spring market we’ve seen since 2019,” Bibby says. “We didn’t have a spring market in 2020 because of COVID. In 2021, I believe we were going through a third wave of the pandemic, causing the spring market to take a step back. And then last year was when interest rates started to go up, and the market started into its decline.
“This is probably the first spring market we’ve had in years so it will be interesting to see if inventory levels do in fact stay low. I think it’s safe to say prices will go up and we’ll see some recovery.”