Last week marked the Spring Equinox, which is a great time for those of us who love balance. The equinox is when the amount of sunlight and darkness are perfectly balanced. We’d love to tell you that the market is balanced as well, but we’re leaning back into a seller’s market. That’s not unexpected, almost ever spring season, inventory drops and prices are pushed up. This push lasts until mid-summer, when prices usually level off, but this year we’re expecting a potential interest rate drop after the spring market, which we think might extend the selling season later into the year than usual. We likely won’t see an interest rate drop until after the spring market, because with prices appreciating right now, decision makers do not want to add fuel to the real estate market.
This month is important, because it’s when many families and potential first-time buyers start seriously considering their next move. Since it’s an important month, we want to make this newsletter a bit more informative than usual. We also want to talk about the slowdown of construction in our market, and how it might impact real estate prices in the future.
The market is following its usual seasonal trend…
Average Home Price: $1,108,702 (up .01% from February 2023, but up 6.9% from January 2024)
Number Of New Listings: 11,396 (up 33% from February 2023, and up 37% from January 2024)
Number Of Sales:5,607 (up 18% from February 2023, and up 32% from January 2024)
Month’s Of Inventory: 1.98 (down from 2.04 last February, and down from 2.4 in January 2024)
It’s important to remember our market is divided into many different segments, and they are all recovering differently. The final six months of last year saw inventory of freehold homes enter a balanced market, and buyers became very comfortable negotiating fair market deals. That market has shifted. From July to December, freehold homes saw an average of 3.3 months of inventory (that means there was a good amount of options for buyers to pick from). However, this year, sales have picked up, pushing the months of inventory down. February saw only 1.5 months of inventory for freehold homes. Today, buyers need to be prepared that there’s not as many options as they saw in the last few months of 2023… and sellers are back in the position of power.
Inventory in the condo sector is also dropping, however, it remains a balanced market as of right now. Interestingly, home price fluctuations have been felt equally in freehold and condo type homes. May 2023 saw the peak of home prices for 2023, with the average freehold home selling for $1,556,566, and the average condo selling for $748,483. This February saw prices for freehold homes average $1,443,612, and condos saw prices come down to $695,345. That means both condos and freehold homes saw a 7-8% market fluctuation. This makes us feel confident recommending condos to buyers who might not be in a position to afford freehold homes yet.
Mortgage Update:
While we refer all our client’s mortgages out to mortgage professionals, we did want to mention the shift in mortgage affordability in recent months. Variable rates have not shifted, but banks are discounting their fixed rates quite heavily right now. There are several banks and lenders who are offering fixed-rate mortgages below 5%. Last year, most fixed mortgages sat above 6%. While variable-rate mortgages are still sitting high, the drop in fixed-rate mortgages has unlocked more buying power for buyers willing to lock in with a fixed rate today. Below is a quick calculation to show the shift in buying power for buyers.
Interest Rate at 6%
– Deposit: $200,000
– Amortization: 25 years
– Mortgage Payment: $4,800
– Maximum Purchase Price: $950,000
Interest Rate at 5%
– Mortgage payment: $4,809
– Maximum Purchase price: $1,033,000
Where Our Market Is Headed This Year:
This year, The Toronto Real Estate Board believes we will hit 77,000 sales, and will see home prices hit $1,170,000 by the end of the year. That’s about a 5% increase from February home prices.
Long-Term Outlook:
In previous newsletters, we’ve discussed the rather severe housing shortage we’re facing. For a quick update: Ontario is projected to face a housing shortage of 1.48 million homes by 2030. It’s also expected that the average home price will rise to $1,523,624 by 2030. The average price is $1,108,702 now. Read more about that here.
At a time like this, we should be building more homes to meet demand and lower pressure on home prices. However, with high interest rates, potential home buyers and investors have put buying preconstruction properties on the back burner. From 2018-2022, the GTA saw an average of 24,080 preconstruction condo sales, and 9,660 preconstruction freehold sales. 2023 (January to October) saw 11,060 preconstruction condo sales, and 5,400 preconstruction freehold sales. Read more about that here.
We’re not going to feel the impact of this drop in preconstruction sales for a couple years, but it’s something to consider if you’re waiting to make your next real estate purchase.
If you’re curious to discuss the market, let us know!
Warmest Regards,
Christo and Janette
