Toronto home price surge biggest since pandemic peak
Another sign of persistent inflation just before the Bank of Canada’s decides on rates
Another sign of persistent inflation just before the Bank of Canada’s decides on rates.
Prices in Toronto’ housing market increased 3.2 per cent in May to $1.14 million on a seasonally adjusted basis, the third straight monthly increase and the biggest since the market peaked in February 2022, according to data from the Toronto Regional Real Estate Board.
The spring surge in Toronto house prices accelerated again in May, providing another sign of persistent inflation in parts of the Canadian economy before a key central bank interest rate decision next week.
The benchmark price of a home in Canada’s largest city increased 3.2 per cent last month to $1.14 million on a seasonally adjusted basis, the third straight monthly increase and the biggest since the market peaked in February 2022, according to data released Friday from the Toronto Regional Real Estate Board.
The average selling price, at $1,196,101, fell 1.2 per cent from May 2022 but rose 3.7 per cent from April 2023.
Economic Research: Economic Outlook Canada Q2 2023
Economic Research: Economic Outlook Canada Q2 2023: A Dip Is Expected, Though Resilience Persists
The Canadian economy was surprisingly resilient in the first quarter of 2023 after a disappointing end to 2022. Helped by a mild winter and better economic conditions in the U.S. at the start of the new year, first-quarter economic data seems to be coming in better than we expected. We now expect a 0.4% annualized gain in real GDP for the first quarter (was down 0.9% in our November forecast).
However, some weakness is likely heading into the second quarter. S&P Global Ratings Economics expects Canadian economic activity to dip 0.6% in the second quarter on continued declines in housing, a slowdown in consumer spending, and weakening exports as the U.S. falls into recession. For the year, however, we expect a 0.8% increase in real GDP as Canada likely avoids recession.
Since our September forecast, we have expected the U.S. to fall into a shallow recession in 2023. We now expect U.S. GDP to decline by 0.3 percentage point between its peak in first-quarter 2023 and its third-quarter trough. If this prediction proves correct, this recession will beat the 2001 recession as the softest since 1960.
Although safeguards from the Federal Reserve and other regulators have stabilized conditions, banking concerns increase the risks of a worse outcome. We developed these forecasts during a period of high market volatility and significant policy changes, and they therefore have wider-than-normal confidence bands. Forecasting began before the failure of Silicon Valley Bank.
Canadian economic growth stalled in fourth-quarter 2022 for the first time since the pandemic-led contraction in second-quarter 2021. A slowdown in inventory accumulation and continued weakness in housing and business investment led to the flat GDP growth.
GTA market sees surge in overbidding: report
The number of Greater Toronto Area (GTA) neighbourhoods in overbidding territory tripled between January and February, possibly indicating an uptick in demand and competition among buyers.
Toronto’s real estate market has had its share of ups and downs in recent years, with significant fluctuations in both home prices and sales volume. In February, homes sold for an average of 17.9 per cent less than the previous year, and sales volume decreased by 47 per cent.
However, there are now early signs of an uptick in demand and competition among buyers, according to the latest data from Wahi, a digital real estate platform. The number of Greater Toronto Area (GTA) neighbourhoods in overbidding territory tripled between January and February, possibly indicating an uptick in demand and competition among buyers. Wahi analyzed nearly 400 neighbourhoods and found that roughly one quarter (24 per cent) were in overbidding territory in February, up dramatically from 9.0 per cent in January.
The previous high of 14 per cent was recorded in July 2022. York Region continued to see the strongest signs of overbidding activity, with Rouge Woods in Richmond Hill, leading the pack with a median sale price 26 per cent higher than the median asking price. Berczy Village, Markham, followed at 22 per cent. Next was Rural Richmond Hill, where the median sale price was 20 per cent above the median listing. Wismer, Markham, inched out Westbrook, Richmond Hill, as its median overbid amount represented a 15 per cent increase from the median list price, compared to the latter’s 14 per cent difference.
Wahi considers a neighbourhood to be in overbidding territory when its median sale price is higher than its median list price. Wahi excludes neighbourhoods where fewer than five homes changed hands in a given month. By these standards, there were 64 overbidding neighbourhoods in February, compared to 20 in January.
Why 2023 Is a Buyer’s Market for Investors in Toronto
25,000 condo units are ready to hit the Toronto real estate market this year, according to Urbanation. However, a recent revision sees this number down nearly 6,600 units from the previously reported 32,000 units expected. This number still beats the previous high of 22,473 units completed in 2020. Yet, 25,406 units are still insufficient to keep up with the demand of homes needed annually.
This inflow of condos comes at a time when interest rates have reached what seems to be an all-time high – which is not the case – intimidating investors waiting on the sideline from entering the market. With high-interest rates causing high mortgage borrowing costs, the city is now seeing a drop in sales and home prices, leaving many to wonder what this could mean for investors. You may be surprised that now is the best investment time. The reason is: We are in a buyer’s market.
Right now is the time to buy a pre-construction, assignment or resale condo – depending on your investment goals. As sales are low, the price of homes is also low, meaning this is an investor’s opportunity to dive in and seize a good deal. After all, Warren Buffet, one of the most successful investors of our time, once said it is wise to be “Fearful when others are greedy, and greedy when others are fearful.”
With Ford’s plan to build 150,000 homes annually in Ontario over the next decade, 25,400 units seem like a step in the right direction. However, the province is still making up for the low numbers seen during the pandemic period, when we reached lows of 13,885 in 2021 – the lowest since 2017. While an insufficient number of homes are being constructed to meet the target of 1.5 million, we can expect the market to pick up as the demand and increase in immigrants rises.
The Bank of Canada raised interest rates to 4.5% to help solve inflation and cool the market. But as we mentioned, the demand for homes will continue to grow over the next decade. At the same time, Canadians are trying to qualify for mortgages with five-year interest rates nearing 5%, but this should not deter investors from entering the market. As we know, investing in a pre-construction condo should be a long-term investment, not a short one. If you look at interest rates over the last five years, you would think they are at the highest they’ve ever been.
Low Supply Heats Up Activity, Bidding Wars Across GTA – Toronto Area Real Estate Market Update – March 2023
In spite of historically low sales levels and high interest rates, the demand bottleneck typical of the first quarter is making its annual appearance.
Bidding Wars are Back in Toronto Real Estate
In last month’s report, I discussed the early signs I was seeing that the housing market in the Toronto area was starting the year hot. One month later, my very early interpretation of the latest data and trends appears to have been correct. After the Bank of Canada raised its interest rate a record 425 basis points starting in March of last year, one would expect this winter’s housing market to remain soft and even see prices trend down further as the market adjusts to today’s much higher interest rates. But Toronto’s housing market is defying all expectations and is starting the year more competitive than anyone expected.
While sales remained at near 20-year lows for the month of February, new listings were at a 20-year low and the imbalance between supply and demand kept the market competitive. The month of February saw just over 1,400 more homes sell when compared to the previous month, but new listings over the same period were up by only 668.
In other words, the change in sales outpaced the change in new listings by a margin of 2:1.
Looking at a weekly measure of MOI for houses and condos, it’s been trending down rapidly to start the year and inventory levels for houses during the second week of March were at their lowest level since April 2022, and, for condos, at their lowest level since May 2022.
Amendments to the Prohibition on the Purchase of Residential Property by Non-Canadians Act’s accompanying Regulations
Today, the Honourable Ahmed Hussen, Minister of Housing and Diversity and Inclusion, announced amendments to the Prohibition on the Purchase of Residential Property by Non-Canadians Act’s accompanying Regulations.
The Act was passed by Parliament on June 23, 2022, and the Act and Regulations came into force on January 1, 2023, as part of the Government of Canada’s strategy to make housing more affordable for Canadians. The accompanying regulations were developed for the Act to set out specific exceptions, definitions, and clarifications necessary to implement the prohibition.
To enhance the flexibility of newcomers and businesses looking to add to Canada’s housing supply, the Government of Canada is making amendments to the Regulations, to expand exceptions to allow Non-Canadians to purchase a residential property in certain circumstances. These amendments will further support individuals and families seeking to build a life in Canada by pursuing home ownership in their communities sooner and address housing supply issues. These amendments come into force on March 27, 2023.
The following amendments are being announced by the Minister of Housing and Diversity and Inclusion:
Enable more work permit holders to purchase a home to live in while working in Canada.
The amendments will allow those who hold a work permit or are authorized to work in Canada under the Immigration and Refugee Protection Regulations to purchase residential property. Work permit holders are eligible if they have 183 days or more of validity remaining on their work permit or work authorization at time of purchase, and they have not purchased more than one residential property. The current provisions on tax filings and previous work experience in Canada are being repealed.
Repealing existing provision so the prohibition doesn’t apply to vacant land.
We are repealing section 3(2) of the regulations, so the prohibition does not apply to all lands zoned for residential and mixed use. Vacant land zoned for residential and mixed use can now be purchased by non-Canadians and used for any purpose by the purchaser, including residential development.
Interest rates are unexpectedly dropping on five-year mortgages — and the global banking crisis is partly the cause
Experts says it might be time to lock in a pre-approval rate as a fall in the Canadian five-year bond yield is bringing down certain fixed mortgage rates.
Interest rates are unexpectedly dropping on five-year mortgages — and the global banking crisis is partly the cause. Canadian homebuyers are about to get an unexpected break on their mortgages — in part, because of the global banking crisis.
Following the collapse of Silicon Valley Bank and Signature Bank, government bond yields have tanked, and as a result, mortgage lenders are slashing rates on five-year fixed mortgages, which are pegged to five-year bonds, by as much as 0.4 of a percentage point. And there may be more rate declines to come.
“It doesn’t hurt to lock in a preapproval rate right now,” said Robert Kavcic, chief economist at BMO Capital Markets, “especially if you’re finally looking for some relief on interest rates.”
Several mortgage lenders and brokerages have started slashing fixed rate mortgages by as much as 40 basis points, according to Victor Tran, a mortgage and real estate expert at Ratesdotca.
“And we are expecting more lenders to adjust rates this week,” Tran added. “If you are looking for a home, now is the time to get a pre-approval.”
Currently, fixed rates for five-year insured mortgages are at 4.49 per cent, according to numbers from Ratesdotca. Meanwhile for three-year insured they’re at 4.59 per cent for five-year uninsured they’re at 4.79 per cent and for three-year uninsured they’re at 4.89 per cent.
This can provide some long-awaited relief for buyers shopping for these kinds of mortgages, says said Ron Butler, mortgage broker of Butler Mortgages.
“For most of last year, a five-year fixed rate was somewhere between 5.09 per cent and 6.09 per cent,” Butler said. “Today we can find you a five-year fixed rate for just under 5 per cent.”
The fall in bond yields and subsequent lower fixed rates “is a reflection of the fact that most people and most of the economists and analysts in North America believe that the Bank of Canada has stopped raising interest rates,” Butler said. “And it would appear that soon the U.S. Federal Reserve will stop raising rates.”
While it’s unlikely fixed rates will drop as low as 2 per cent or even 3 per cent, Butler said they might be a better choice than variable rates moving forward.
“It is the greatest likelihood that for the next year or more that fixed rates will be a better value for Canadians than variable rates, which was not true for most of the last 35 years.”
Canada’s Housing Starts Climbed 13% in February
There’s some promising news for those who are looking for signs of renewed life in Canada’s real estate market
According to new figures released today from national housing agency Canada Mortgage and Housing Corporation (CMHC), the annual pace of housing starts climbed 13% in February. This is largely attributed to breaking ground on urban multi-unit and single-family detached homes.
A housing start is defined as the beginning of construction work on the building where the dwelling unit will be located, either at the stage when concrete has been poured for the whole of the footing of the structure or an equivalent stage where a basement will not be part of the structure.
According to CMHC, the seasonally adjusted annual rate of housing starts for February was 243, 959 units, compared to 216, 514 in January. Meanwhile, the annual rate of urban starts bumped up 16% to 222,663 units in February.
According to CMHC, declines in Montreal and Vancouver were offset by Toronto, which recorded a 55% increase in total SAAR housing starts in February.
Fed poised to approve quarter-point rate hike this week, despite market turmoil
The Federal Reserve likely will approve a quarter-percentage-point interest rate increase this week, according to market pricing and many Wall Street experts.
Even with turmoil in the banking industry and uncertainty ahead, the Federal Reserve likely will approve a quarter-percentage-point interest rate increase next week, according to market pricing and many Wall Street experts.
Rate expectations have been on a rapidly swinging pendulum over the past two weeks, varying from a half-point hike to holding the line and even at one point some talk that the Fed could cut rates.
However, a consensus has emerged that Fed Chairman Jerome Powell and his fellow central bankers will want to signal that while they are attuned to the financial sector upheaval, it’s important to continue the fight to bring down inflation.
That likely will take the form of a 0.25 percentage point, or 25 basis point, increase, accompanied by assurances that there’s no preset path ahead. The outlook could change depending on market behavior in the coming days, but the indication is for the Fed to hike.
“They have to do something, otherwise they lose credibility,” said Doug Roberts, founder and chief investment strategist at Channel Capital Research. “They want to do 25, and the 25 sends a message. But it’s really going to depend on the comments afterwards, what Powell says in public. … I don’t think he’s going to do the 180-degree shift everybody’s talking about.”
Markets largely agree that the Fed is going to hike.
As of Friday afternoon, there was about a 75% chance of a quarter-point increase, according to CME Group data using Fed funds futures contracts as a guide. The other 25% was in the no-hike camp, anticipating that the policymakers might take a step back from the aggressive tightening campaign that began just over a year ago.
Goldman Sachs is one of the most high-profile forecasters seeing no change in rates, as it expects central bankers in general “to adopt a more cautious short-term stance in order to avoid worsening market fears of further banking stress.”