GTA Market Stats Highlights
The October numbers are a continuation of the August and September numbers. The biggest drop has already happened. Even with the rate hike in September and October, the market didn’t stray from the trend we have seen in the past few months.
Sales are down 49.1%, and new listings are down 11.6% down year-over-year. That’s the lowest for any October since 2010! This lack of inventory has restricted supply and has flattened off the steep decline in prices we saw earlier this year in the last 3 months.
The Average GTA price is down 5.7% year over year, however, it is still 17% higher than the 2020 average. Home price has levelled off since July, sitting around $1.08M. Sellers are holding off their plans to sell and only moving if they have to. There is no rush of listings from sellers who bought and had to sell. We expect the price to be very sticky while going down slightly.
To keep things in perspective, we need to look at the big picture. 2021 sales reached historic record years at 121k sales which we was borrowed activity from the future. In 2022, there has been 67k sales year-to-date, October had 4961 sales which looks like are on pace for just under 80k sales. Note, the 10 year average is 92k sales.
Interest Rate Update
The Bank of Canada (BoC) raised its policy rate by 0.50% on Oct 26. This was lower than market expectation. This was the sixth rate hike this year, and the rate has increased from 0.25% to 3.75%.
There will be one more rate hike at the next BoC announcement which is scheduled for December 7, 2022. BoC may raise the interest rate by another 0.25% to 0.5%, and that will be the last hike for 2022.
The stress test is doing its job protecting many, but now rates are starting to exceed the 2% threshold of the stress test. Therefore, it is time to check your trigger rate if you are on a variable rate mortgage, and here is how to check your trigger rate.
Policy Updates
Foreign Buyer Tax Increased Again
The government of Ontario increased the Non-Resident Speculation Tax rate from 20 to 25 per cent – the highest of such tax in Canada.
The Ontario government previously increased the non-resident speculation tax from 15 per cent to 20 in March and expanded it to cover the whole province instead of just the Greater Golden Horseshoe area of southern Ontario.
Ontario’s budget this year showed that the non-resident speculation tax was projected to bring in $175 million in this fiscal year.
More Homes Built Faster Act
They also proposed a new More Homes Built Faster Act. (Note, it has not been passed yet.) This Act is intended to remove red tape and give power to residents to build additional units.
It is part of the government’s long-term strategy to build 1.5 million new homes in Ontario within a decade. As part of this plan, municipal zoning laws will be overridden to allow more “missing middle” homes to be built without further planning approvals.
Homeowners now have the ability to have up to 3 units in their homes without any bylaw amendments or municipal permissions.
At the same time, it will open the door for a policy framework that could significantly benefit developers to build more homes. The downside is that speeding up the approval process removes the opportunity for existing residents to have a say.
Underlying Issue – Distressed Sellers
3 main factors that affect real estate values: Interest rates, unemployment and immigration.
Interest rates
More rate hikes are expected to come, and the rates will most likely stay high for longer than expected. This could potentially lead to distress selling since the majority of new mortgages in the past 2 years were variable. The cost of borrowing will determine people’s budgets and what they can afford to buy.
As the cost of borrowing continues to increase, some of these home owners may not be able to afford to sell their homes as their properties will be underwater – property values dropping below the loan amount.
Something to keep an eye on is the pre-construction condo market which is largely driven by investors. Many buyers are not well-capitalized and were speculating on strong growth. As the rates continues to go up, there will be even more pressure on investors to obtain a mortgage and close their deals, or sell them below market value to get rid of their purchase.
Unemployment
Unemployment rate is what determines if people have jobs to afford to buy properties. The BoC is aiming for higher unemployment as part of the inflation control. With many recent reports saying recession is highly likely in 2023 (if we aren’t in one already), we suspect some companies will be laying off workers. In fact, many companies have already started. If people lost their jobs, they can’t afford to pay their rent or mortgages. That will lead to reduced spending and it might even lead to an increase of distressed selling.
Immigration Target for 2023-2025
Canada broke its all-time immigration record by welcoming over 405,000 immigrants in 2021 and is looking to welcome nearly 432,000 immigrants this year.
And our government just announced a new increase to its immigration targets – 465,000 in 2023, 485,000 in 2024, then 500,000 in 2025.
Canadian industries are facing a significant labour shortage, with about one million job vacancies across the country. The new plan puts an emphasis on increasing the number of immigrants who will be admitted based on their work skills or experience over the next three years.
On the housing side, we all know we can’t build homes fast enough for this growth as there is a significant shortage of construction workers. So what can we expect? House prices and rents will continue to grow in the long term.
Future of the market
As the economy heads towards a recession, if it isn’t already, the real estate market in the coming months, will continue its gentle downward trend before it gets better.
Uncertain times ahead for many, the market looks to get a little slower before it gets better. This isn’t all bad news, just as when the market was hot and now that it’s slow, if you’re buying and selling in the same market, you will be fine.
Buyers, there’s less competition and homes are at a discount. Sellers, there aren’t a lot of homes for sale so we can still position ourselves to sell successfully. You can download our buyer guide and seller guide to better prepare your next move.
If you have any questions about your specific real estate position, we are here to help.
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- 📲 647-504-0690
- 📧 steven@mistersauga.ca
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