Uncertainty Amid Rising Inventory and Shifting Interest Rate Expectations
The GTA housing market experienced a cool fall market start. Sales increased modestly compared to last year; however, showings are fewer, and new listings are outpacing sales, driving up inventory levels.
In September, the condo market reached 6.9 months of inventory (MOI), while the low rise hit 4.5 MOI, reflecting a significant increase from six months ago.
Economic Context and Interest Rate Outlook
The market is influenced by changes in expectations regarding interest rates. Initially, a more competitive market was anticipated for the new year, driven by the expectation that the Bank of Canada would cut rates up to three times, possibly including a 50-basis point cut.
Fixed-rate mortgages were projected to fall into the 3% range, stimulating buyer activity. Starting Dec. 15, 2024, policy changes to insured mortgages are increasing the cap from $1 million to $1.5 million and extending amortizations from 25 to 30 years for some buyers are expected to support demand (read more here).
However, a robust U.S. jobs report, which showed 254,000 new jobs in September, has altered this outlook. This strong economic data reduced the likelihood of aggressive rate cuts by the Federal Reserve, as a booming economy lessened the need for stimulus. Consequently, 5-year bond yields surged by 35 basis points in Canada, following similar movements in the U.S. market. This shift suggests that in the short run, the fixed mortgage rates may actually trend upward and less likely of falling as expected.
Low-Rise Housing Market
In the low-rise housing market, sales increased by 10.6% year-over-year, with new listings up 11%, resulting in a 35% increase in active listings to 25,612. Average prices hovered around $1.26 million, marking a 2% decline from last year, and have remained stable since 2022.
Condo Market
The condo market saw flat sales year-over-year, with a 8.5% increase in new listings and a 38% rise in active listings, reaching almost 9,000 units. The months of inventory for condos climbed to 6.85, the highest level in at least a decade. Average condo prices fell by 3.5% to $682,543. If inventory levels continue to rise, additional downward pressure on price may be expected.
Geopolitical and Global Economic Factors
Geopolitical risks, especially in the Middle East, add another layer of uncertainty, as rising tensions could disrupt global energy prices. If oil prices surge, central banks may find it difficult to cut rates aggressively, reducing the likelihood of significant rate reductions in 2025. The combination of robust economic conditions in North America and potential geopolitical disruptions may impact the trajectory of the housing market in the coming years.
Outlook
The Toronto housing market faces several uncertainties due to shifting economic conditions, geopolitical risks, and evolving interest rate expectations. Keeping an eye on inventory trends and interest rates will be crucial in predicting market behaviour as 2025 approaches.
Everyone’s housing needs are different, and your goals are unique. Whether buying, selling, or renting, navigating these market conditions can be challenging. The best way to make informed decisions is to consult with a trustworthy realtor who can help navigate this market with your situation.
If you’re considering a move, feel free to reach out via phone or email. Together, we can strategize and make the best decisions in these shifting times.
Email or call us to get insights on your neighbourhood stats or an up-to-date appraisal of your home.
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