February 2023 GTA Real Estate Market Update – The Market is Rebounding! Are Rate Cuts Coming?

Steven Ho Market Update

Speed read – TL;DR:

⚡Year-over-year Average price is down 18% (Keep in mind, we are now comparing to the market peak.)

⚡Month-over-month stats indicates market is rebounding, even after seasonal adjustments!

⚡The GTA now has just 1.5 months of low-rise inventory. Bidding Wars have returned!

⚡Canadian bond yields fell dramatically on March 13th. (After US bank collapse) Hardest fall since 1980s!

⚡The market now expects 2 BoC rate cuts by July!

Year-over-year

We knew the year-over-year numbers were going to look bad as February 2022 was the peak of the market before all the interest rate hikes. However the market has been stable since July and the average price has been hovering between $1.040M – $1.095M.

Keep in mind that 2022 was an anomaly year due to the significant demand for homes caused by the pandemic, it was unlikely to be sustained in the long term.

The average selling price for February 2023 was $1,095,617 – down 17.9% compared to February 2022. Some of this decline is attributed to the fact that the share of sales below $1,000,000 was 57% in February 2023 versus only 38% a year earlier.

Home prices in the Greater Toronto Area peaked in February 2022. One year later, here’s how average house prices have changed by municipality.

from Move Smartly March 2023 Report

Month-over-month

Looking at the month-over-month summary, sales are up and more listings have been coming up compared to January but are still quite low compared to last year’s peak. There were only 8,367 new listings in February which is down 41% from a year earlier.

The market has undoubtedly started tightening across various metrics even after seasonal adjustments. The average selling price for February was $1,095,617, and reached its highest point since June 2022. It is roughly 6% higher than the average January price of $1,038,390, with the low-rise freehold sector leading the rebound in terms of prices. Detached homes increased by 7.3%, semi-detached increased by 4.9% and townhouses increased by 7.6% month-over-month.

Compare to other segments, condos are not doing that well as many investors are trying to sell off their units due to high carrying costs. The average price for a condo was $723,659 in February, down 14% over last year. The number of active listings was up 83% over last year. The MOI decreased to 2.7 MOI in February, indicating that supply is slightly less constrained for condos than for houses.

It’s important to note that a whopping 36% of the condos in Toronto and 42% of the condos in Ontario are owned by investors, according to Statistics Canada.

The Return of Bidding War

With the lack of new listings and sales increasing, we are noticing the majority of homes coming on the market with offer dates and multiple offers are returning.

From @shannon_perrie, a Durham agent.

I’m seeing more homes getting 10-20 offers, even 30+ offers lately, but end up still selling for relatively reasonable prices. Unlike last year’s crazy bidding where homes sold for more than the market value, this time around the prices are more reasonable.

“This increased demand will run up against a constrained supply of listings and lead to increased competition between buyers,” said TRREB Chief Market Analyst Jason Mercer.

The GTA now has just 1.5 months of low-rise inventory. The last time inventory was this tight was in April 2022. The BoC policy rate at that time was only 1%! Even though both sales and new listings are close to 20-year lows, the demand for homes is outpacing the supply of new listings. Fast.

Honestly, who could have imagined the housing market would be this competitive with rates above 5%?

Bond Yield Plunge. Are Rate Cuts Coming?!

Many buyers have pushed to purchase a lower-priced home to offset the higher borrowing costs.

The Bank of Canada decided Wednesday, March 8, to keep its interest rate unchanged at where it is, at 4.5%. It’s the first time in 9 meetings that the central bank has decided not to raise its interest rate. As a result, the buyer confidence returns.

Before the news of the Silicon Valley Bank’s collapse, the Bank of Canada was expected to hold its interest rate for the rest of this year. However, now with the failure of two major U.S banks on the weekend and the shock that went through the markets, bond yields fell dramatically on March 13th.

Over the past five days, the Canadian 5-year bond yield plunged by 57 basis points. Similar drops also happened for 2-, 4-, and 10-year bond yields.

What does this mean? Mortgage rates are directly influenced by bond rates. The mortgage rates that were in the 5% range a week ago are now in the 4% range.

The market’s assessment of future Bank of Canada moves has now shifted dramatically, particularly in shorter-term issues. With the bond rates dropping, the market now expect two Bank of Canada rate cuts by July, a 0.25 point cut at April 12th meeting, with another one afterwards.

This is a huge turn of events. When interest rates drop, sales and competition will pick up, and the price goes up! If you can get into the market, I will suggest you do it soon. It’s only a matter of time until rates comes back up again.

I also did a video on this topic on Instagram, watch it below. 

Book a consultation and get a customized approach to your real estate needs.

📱Phone: 647-504-0690

📧Email: steven@mistersauga.ca

For daily updates and insights on the market and other investment tips, go follow me on Instagram @Mister_Sauga!