Climbing interest rates and high mortgage costs impacted affordability in the Greater Toronto Area throughout 2023, keeping many buyers at bay.

As a result, just 65,982 homes were sold in the GTA last year, according to data from the Toronto Regional Real Estate Board (TRREB), the lowest annual level since 2000, when 58,343 properties changed hands.

In comparison, 74,552 homes were sold during the 2008 financial crisis, and 95,151 were sold throughout the first year of the pandemic. Meanwhile, the real estate boom of 2021 — spurred in part by historically low interest rates — resulted in a record-setting 121,712 home sales in the GTA.

Although a record sales year tends to be succeeded by one or two years of slower activity, 2021's high and 2023's low were "much more extreme than usual," Toronto realtor and chartered accountant Scott Ingram told STOREYS. The unexpected range was due to buyers' "knee-jerk" reaction to low rates, which led many who would have otherwise purchased in 2022 or 2023 to do so in 2021.

"It’s safe to say that interest rate hikes were the biggest contributor to the decline in home sales last year. A lot of people who were looking to buy decided instead to wait and see what was going to happen," Shay Asnani, a realtor with Right at Home Realty, told STOREYS.

"People didn’t know when the rate hikes were going to stop, if borrowing costs were going to keep getting higher, so they were afraid to jump into the market."

With rates remaining at 5.00%, their highest level since 2001, that fear, and correspondingly flat sales, will persist for the next few months, Asnani believes. But, as TRREB President Jennifer Pearce noted in the board's latest market update, "relief seems to be on the horizon."

As inflation slowly cools and the economy slows, economists predict that the Bank of Canada will begin cutting interest rates come spring, leading to a drop in borrowing costs — in December, several lenders already began offering rates below 5% on certain fixed rate mortgages as government bond yields cooled.

Subsequently, buyers could start stepping off the sidelines with renewed confidence in the market.

"For the upcoming year, I think we'll see a bounce-back in sales. There was a lot of uncertainly in interest rates the last couple of years, and they were sitting at high levels relative to the recent past," Ingram told STOREYS.

"We know buyers love low rates, but they also crave certainty. With fixed rates having come down in the last few months and most predictions calling for Bank of Canada cuts this year, I think buyers have a lot more confidence that rates aren't going to go up further, and that they will probably fall."

Ingram said he wouldn't be surprised if home sales jump back into the "75,000 to 80,000 range” in 2024, in-line with 2022’s 75,140 sales, but still below the pre-pandemic 87,825 sales seen in 2019. Asnani likewise expects a "slow burn" will follow rate cuts, rather than the springtime sales rush experienced in 2023.

But tepid sales and lower interest rates will not result in improved affordability, as RBC starkly pointed out at the end of 2023.

"Assuming borrowing costs trend lower this year, look for tighter market conditions to prompt renewed price growth in the months ahead," TRREB Chief Market Analyst Jason Mercer said.

Real Estate News