The Greater Toronto Area (GTA) saw average resale home prices slip in recent months, and although the decline is "negligible" thus far, it could just be the beginning if rate hikes continue, says a new report from Chestnut Park Real Estate Brokerage.
The GTA saw a grand total of 5,250 resales in July, the report says. This count, although 8% higher than the 4,870 sales reported last July, is down significantly from the sale numbers reported in recent months. In fact, it marks a staggering 42% drop off from the 8,987 sales seen in May — the last month before the Bank of Canada resumed its interest rate hikes in June and July.
Interestingly, in that same time, as sales plummeted, the average sale price only fell 3%, hitting $1,118,374 in July.
"Ironically, the decline in reported sales and average sale prices is not an indication of a weak market," the report, written by Chestnut Park President and CEO Chris Kapches, reads. "Rather, it reflects affordability. Each rate hike that the Bank of Canada implements makes it that much harder for buyers, and in many instances removes them from the market. Those buyers that have the financial ability are still engaged, and continue to drive the market in ways that appear to be incongruous with sales and average sale price numbers."
Buyers who still have the means are snapping up properties quickly, with all 5,250 sales in July having been contracted after just 17 days on average, selling for 102% of their asking price. Toronto's east end in particular saw some motivated buyers last month, with semi-detached homes in the area going in just 11 days on average, and for 113% of their asking price.
"These numbers reflect a market that is extremely robust," Kapches writes. "Unfortunately, because of a lack of affordability generated by the Bank of Canada, some buyers simply can't participate in it."
Kapches notes that if the Bank of Canada continues to implement rate hikes, "there is likely to be further compression of average sales prices." Continued rate hikes could also lead to more homeowners being forced to sell their properties as they face renewing their mortgage at a much higher rate, adding more inventory to the GTA market.
"There is some, though scant, evidence that this may have happened in July where 13,412 new properties came to market, 11.5% higher than the 12,294 that came to market in July of 2022," the report reads. "At the beginning of August, there were 15,371 homes available to buyers, slightly more than the 15,329 available last year. The significance of the 0.3% increase is that it is the first positive variance, year over year, that we have seen since the beginning of the pandemic."
Kapches is hopeful that the bank will hold back from another rate hike come September, especially considering the significant reduction in inflation that has already been seen — hitting 2.8% in June — as well as the fact the economy is already showing signs of weakness.
"The means that those buyers that have the financial ability to engage in this market will continue to do so but in fewer numbers," the report says. "If more properties come to market, we will see increased pressure on average prices, as buyers have, for the first time in years, more choices."
