Toronto Real Estate Prices Fall

Homebuyers in the Toronto real estate market experienced a modest cool-down on the pricing front during the heat of summer, according to recent data from the Toronto Region Real Estate Board (TRREB).

In July, the Home Price Index (HPI) composite benchmark, which is considered a more comprehensive measurement, showed that Toronto real estate prices tumbled by five per cent compared to the same time a year ago.

The average selling price dropped by 0.9 per cent year-over-year last month to $1,106,617. In July 2023, the average sales price for a home in Toronto was $1,116,950.

While sales activity rose at a modest pace of 3.3 per cent from a year ago, local real estate association experts say that a better-supplied housing market provided homebuyers with relief. New listings soared nearly 19 per cent year-over-year to 16,296 units, and active listings spiked more than 55 per cent to 23,877 units.

In addition to lower home prices, mortgage rates have already slipped after the Bank of Canada (BoC) lowered interest rates from their more than two-decade high of five per cent. According to the Canada Mortgage and Housing Corporation (CMHC), the conventional five-year fixed mortgage rate has been below six per cent for two consecutive months. Additionally, the Financial Post recently reported that many lenders have offered a mortgage rate of below five per cent.

So, while households could be enjoying some savings now, a looser lending environment and a tighter landscape could fuel demand and absorb some of the new supply that has entered the Toronto real estate market.

“As more buyers take advantage of more affordable mortgage payments in the months ahead, they will benefit from the substantial build-up in inventory,” said TRREB Chief Market Analyst Jason Mercer in a statement. “This will initially keep home prices relatively flat. However, as inventory is absorbed, market conditions will tighten in the absence of a large-scale increase in home completions, ultimately leading to a resumption of price growth.”

Toronto Real Estate’s Supply Challenges

Because of these possible scenarios, sector experts are urging further new home construction activity and industry innovation.

“TRREB applauds Toronto City Council’s decision to consult with the province on adopting single egress stair requirements in the building code for multi-residential buildings up to four storeys. This would make it easier to create a variety of multi-family units large enough for families,” said TRREB CEO John DiMichele. “Another important part of the housing formula is connection to public transit. We are very encouraged to hear that we are closer to an opening date for the Crosstown LRT and are looking forward to a firm announcement.”

After a sluggish start to new home construction activity earlier this year, the Toronto real estate market has witnessed a modest resuscitation in housing starts in recent months. New CMHC figures show that housing starts totalled 5,523 in July, up more than six per cent from the same time last year. In the first seven months of 2024, housing starts totalled more than 28,000 units, down from the 31,000 units during the same year-to-date span a year ago.

Still, the CMHC projects that new home construction is on pace for the slowest level since 2018. This coincides with recent data showing that sales of new and pre-sale condos have cratered in the Greater Toronto and Hamilton Area (GTHA), which could spell bad news for future development.

“Over the rest of the year, we expect [housing starts] to continue to trend down in the province and particularly in the GTA,” said Anthony Passarelli, CMHC’s lead economist for southern Ontario, told CBC News this past spring.

With cumulative inflation running wild over the last few years and rampant price pressures throughout the industry – be it labour or raw materials – Toronto real estate prices need to remain high to generate a profit.

Of course, this is not an isolated event situated in Toronto. A recent TD Economics note suggests that new home construction activity will trend downward nationally for the remainder of 2024.

“Despite the rebound, housing starts remain below the multi-decade highs observed in 2021 and 2022, particularly in single and semi-detached units,” said Maria Solovieva, an economist at TD Bank. “We expect multi-family units to soon contribute to this decline, given weak pre-sale activity in recent years and elevated borrowing and construction costs.”

Since monetary policy functions with a long and variable lag, the full rate hike effects since the spring of 2022 might begin becoming realized. Does this mean the central bank’s rate cuts will not be experienced for a couple of years? While the market correction was not as intense as many had anticipated, it waits to be seen if rate cuts will fuel demand and support prices this fall.