Speed read – TL;DR:
⚡GTA Market is Back Into a Strong Seller’s Market!
⚡Canadian Banks are Helping Mortgage Holders Stay in Their Homes.
⚡Low Rise is Hot, How About Condos?
⚡Updates on Immigration, Foreign Buyer Ban and Housing Start
The Market Has Been Hot!
If you have been following our monthly updates, you know the market has been heating up quite quickly. April was no exception.
The market is back into a strong seller’s market. The average GTA price went up almost 10% in the first quarter of 2023. and it has reached its highest level since May 2022.
The MOI (month of inventory) is now 1.38 for all housing types, and 1.2 for low-rise homes, indicating tight supply conditions. The supply and demand conditions are now as tight as they were before the correction. It will continue to put upward pressure on prices. MOI is the pace of sales, how long it takes to sell out all the current inventory with the current amount of sales.
As you can see, the market has picked up since February and has now picked up back to April 2022, which was when the market started to slow down last year. The lack of listings is really adding to the upward pressure on price. Seller’s haven’t returned to the market at the rate that buyers have.
New listings are still at a 20-year low, down 38% from last year, but sales are only down 5%. In fact, TRREB reported a whopping 27% jump in sales in April compared to March (Seasonally Adjusted).
This is making the market unbelievably competitive. Many homes are receiving multiple offers and bidding wars are indeed competitive.
With the shortage of listings, buyers are worried that if they don’t buy today, they’ll never be able to buy a home tomorrow.
Buyers expect lower interest rates in the year ahead as the Bank of Canada (and now the Federal Reserve) pauses rate hikes, which they worry could lead to higher home prices as mortgage rates fall, making prices less affordable.
If you’re thinking of making a move, this market looks to be favouring first-time condo buyers and downsizers.
We Are Not Seeing Foreclosure from High Interest Rates.
An unexpected factor contributing to the rapid recovery of the housing market is how well homeowners are managing the increased interest rates. After the most aggressive rate hiking cycle in the Bank of Canada’s history, the mortgage default rate is at record lows.
Why? Well… 75% variable rate mortgages have seen little or no payment changes, and the amortizations of the mortgages have just gone well beyond 25 or 30 years.
Canadian banks have been very flexible to help existing homeowners stay in their homes. Homeowners who had hit the trigger rate are no longer faced with foreclosure or power of sale.
Low Rise is Hot, How About Condos?
The condo market is gaining momentum, but it’s not experiencing the same degree of buyer competition and upward price pressure as the low-rise housing market.
Condo prices went up 2.9% month-over-month in GTA, and 6.7% in Mississauga. With 1.8 MOI in GTA, and 1.6 MOI in Mississauga.
Given the high interest rates, the cost of renting a condo is actually a lot cheaper relative to the cost of owning a unit that is similar in size and quality. Since most of the condo buyers are first-time buyers, they are likely dealing with a smaller budget which limits the potential increase in condo prices in the near term.
Moreover, investors are slowing down since the monthly carrying costs will be significantly higher than the rent they are collecting. This negative cash flow is turning investors away until we see real relief from the high interest rates or when rental rates increase more.
Updates on Immigration, Foreign Buyer Ban and Housing Start
There are two things I want to bring to your attention that will impact the market in the long run.
- Demand Side: Immigration & Work Permit Holder
- Supply Side: Housing Start
rccao.com/documents/Will-Feds-Answer-the-Call-Economic-Analysis-Report.pdf
Demand: Immigration – Strong Start of 2023
Canada immigration rises nearly 40% during the first two months of 2023, 100,430 new permanent residents compared to 72,815 in 2022. If it were to continue throughout the rest of 2023, this would result in 602,580 new permanent residents to Canada this year, far in excess of Ottawa’s target of 465,000 new permanent residents for the year.
Fun fact, not surprisingly: Toronto has historically received the largest share of international migrants to Canada.
Demand: Work Permit Holders are Now Allowed to Buy In Canada
As for the foreign buyer ban, they recently amended the policy and now allow people with work permits to buy without much restriction. On top of that, Canada announces extension of post-graduation work permits for up to 18 months to retain high-skilled talent. These new policies could add more upward pressure on housing prices as demand increases and supply is lagging behind.
Supply: Housing Start Plunges in 2023
CMHC (Canada Mortgage and Housing Corporation) published its latest housing market outlook two weeks ago. They highlighted a significant drop in housing starts in Ontario.
The rising construction costs, labour shortages, and increasing financing costs due to high interest rates are limiting housing starts this year. CMHC predicts that home starts could plunge 32% this year, calling it an “alarming” situation given the dearth of affordable places to live in the country.
Compounding the supply issue is not only the dip in housing starts, but the huge construction backlog in Toronto, due to factors like labour shortages, high construction costs and supply chain delays. This signals to me that future inventory will be lagging behind and add to the shortage of housing supply.
Affordability is set to decline due to demand outstripping supply. If you’re looking to get into the market, this might be your *last call* before the price fully rebounds.
Email or call us to get insights on your neighbourhood stats or an up-to-date appraisal of your home.
📱Phone: 647-504-0690
📧 Email: steven@mistersauga.ca