To our dear Clients, Friends, and Family,
We hope your 2023 is off to a great start. This January has been a welcome break from the chaotic market we experienced over the past few years. While we’re not dealing with the same sales volume as before, it doesn’t mean real estate has reached a standstill! This feels much like our markets from a few years back, and it should be a welcome reprieve for anyone working in the industry or thinking of buying or selling.
As we move into 2023, the GTA market remains strong considering our tight lending conditions. Post-2020, our relationships with our homes changed dramatically, and it’s a change that’s here to stay. Families are prioritizing their homes, and in the face of rising interest rates and living costs, they are focusing on the importance of real estate as both a home, and also as a long-term investment and a hedge against inflation.
While our average sale price trended down for several months, that trend is plateauing, with home prices dropping a little over 1.5% from last month. At the same time, inventory is down around 3.7% compared to January 2022, while sales are down 44.6%. These numbers might sound shocking, but they barely push us out of a seller’s market.
If we reflect on January 2022, we had 6013 sales, but only 5177 new listings came on the market that month, and we ended January 2022 with 3211 homes still for sale (pre-existing inventory). We look at the measure of how many homes are available at the end of the month compared to the number of sales to determine our market type. At 3211 available homes divided by 6013 sales, we had .53 months of inventory… January 2022 was a severe seller’s market. Today, that metric has risen to 2.8 months of inventory, which is considered a balanced market. Even at 2.8 months of inventory, buyers are struggling to find good homes in desirable neighborhoods.
With a growing population, strong employment, and an undersupply of new homes, the fundamentals for market appreciation are almost perfect. The major factor pushing prices down, and limiting sales, is our interest rates.
Our home prices are not dropping because of a loss of confidence, they are dropping because of interim affordability. However, while you commit to a home and purchase price, you only temporarily live with the interest rate. Historically, the Bank of Canada increases rates aggressively to fight off economic concerns, and then tapers back the rate before the full effects of the rates are actually felt (it can take over a year for the impact of a rate to work its way through our market).
With the Bank of Canada signaling a pause in interest rate hikes and having a history of lowering rates several months after they peak rates, we could see lower interest rates in late 2023 or early 2024. Major Canadian banks have already started lowering their fixed-rate mortgages (some below 5%), and Scotiabank has even taken to calling their variable-rate customers to offer cash incentives to lock into a fixed-rate mortgage today. As the rate drops, and affordability increases, prices will climb once again.
This is a market where you could benefit from honest and trustworthy advice, and potentially make a move that puts you further ahead in the coming years.
Warmest Regards,
Christo and Janette
