Andrew's Musings - June 2022

The Cooling

The battle to reign-in soaring housing prices through policy changes has been usurped by powerful economic forces. Amid the highest inflation in 40 years, a doubling both interest rates, and gas prices, even the previously irrepressible Toronto real estate market has begun to cool. Sales of all housing types have continued to fall for a second straight month by circa 40% Y/Y, and prices have also started to drop by circa 3.3% M/M, though they remain up 10% Y/Y.

Interest Rate Hikes

This is no surprise considering that the 30 year amortized rates have more than doubled in the past year from 2% to 4.5%. This means that the monthly payments for a $1m mortgage has increased from $3,696.19 to $5,066.85; a 27% increase. Because most mortgages may simply shift out the amortization periods to keep monthly payments fixed, few will be forced into fire-sale situations during this cycle, but in combination with other hits to a household’s budget, we’re entering an interesting period.

Leading Indicators – Showings & Offers

Showings are a leading indicator to homes sales, and they are down 22% from the peak in March, and down 10% M/M. Offers are down 30% Y/Y and 11% M/M, making bidding wars now a rare bird. Condos are feeling the impact most accurately, with showings down 15%, and offers have plummeted a jaw-dropping 60% from the February peak.

Rental Market Explosion

It is clear that the insatiable hunger to buy anything at whatever price, because it was sure to appreciate has been satiated. Instead, it has been replaced by an explosion in the rental market, where rent prices are fixed regardless of economic influences, and for which we can budget with certainty. Showings on rental units has shot-up 82%, and offers have skyrocketed 161% from February 2022.

Sales to New Listings Ratio

The impact on sales to new listings ratio (“STNLR”) is perhaps the most interesting so far, and is the lowest we’ve seen in three years. It currently sits at 39%, which is the 10th worst or lowest month since TREBB began tracking in 1999; even lower than it was during the draconian COVID lockdown restrictions of April and May. This means that houses are begging to sit on the market and terminations/expirations are on the rise.

The Silver Lining

Don’t fret, there’s always a silver lining! In the coming months, there will be buying opportunities, and I am working on several interesting listings, some exclusive, which will be available in the coming weeks. Fortune favors the brave, and this may be the time to upsize into that special property, which is seldom available.

Luxury properties between $3-7M have not yet seen prices fall appreciably, but “For Sale” signs are popping up more frequently in Rosedale, so it may be the time to pounce on something unique. As we move down budgets, and further afield from 416, my advice to buyers is to remain patient, and to start throwing out low-balls, you never know!