Canadian borrowers finally got (some) relief on the interest rate front in June, when the country’s central bank dropped its overnight lending rate from a sky-high 5% to 4.75%, marking the first cut in four years. That was followed by another cut in July, which brought the rate down to 4.5%. The months leading up to the cuts brought anticipation that any relief from the Bank of Canada (BoC) would bring more buyers from the sidelines and onto the market.
But are the cuts enough to spur more activity in the GTA real estate market this summer after an unusually calm spring? The short answer is, not quite yet.
The Stats
Earlier this week, the Toronto Regional Real Estate Board (TRREB) released its latest market figures. In an overall optimistic tone, the board’s report suggests that Canada’s recent rate cuts may be starting to show up in GTA selling activity, pointing to a year-over-year uptick in sales. However, there’s a caveat: based on last month's data, sales are still trending down month-over-month.
Home sales in the GTA in July 2024 were up compared to July 2023, and so were options for the region’s buyers. GTA realtors reported 5,391 home sales through TRREB’s MLS System in July 2024. This marks a 3.3% increase compared to 5,220 sales reported in July 2023, when the benchmark rate reached 5% following 10 consecutive rate hikes since March 2022.
“It was encouraging to see an uptick in July sales relative to last year,” said TRREB President Jennifer Pearce in a statement. “We may be starting to see a positive impact from the two Bank of Canada rate cuts announced in June and July. Additionally, the cost of borrowing is anticipated to decline further in the coming months. Expect sales to accelerate as buyers benefit from lower monthly mortgage payments.”
On a seasonally adjusted basis, July sales and new listings edged lower compared to June. The annual growth in new listings for the month outstripped that of sales. A total of 16,296 new listings entered the MLS System – a figure that’s up by 18% year-over-year. Of course, more supply means a slight relief in average selling prices for GTA buyers.
The MLS Home Price Index Composite was down by 5% on a year-over-year basis in July 2024. The average selling price of $1,106,617 was down by 0.9% over the July 2023 result of $1,116,950. On a seasonally adjusted monthly basis, both the MLS HPI Composite and the average selling price were up slightly compared to June 2024, according to TRREB.
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Sellers Are Back
The abundance of supply signals a renewed level of confidence amongst GTA sellers, many of whom have been holding off. “We’re in this situation where we have a lot of anticipation of many rate cuts this summer and likely into the fall and we have a lot of new listing inventory – we’re up almost 20% for the month of July,” says Christopher Alexander, president of RE/MAX Canada. “A lot of these people are eventual buyers. So, I think we’re starting to see signs of renewed life in Toronto’s market.”
Just when sellers become buyers is the big question. “Homes that are priced really well – almost on the aggressive end – are those who are selling the quickest,” says Alexander. “We’re back in the market where most buyers want everything new, and if you’re not in that bucket as a seller, unless you’re priced super aggressively, you may be on the market for a long while.” So, the fixer-uppers face more of a challenge.
As for pricing, Alexander says the abundance of supply will keep GTA prices at bay – for now. “We have a lot of supply in the market that will carry us for a while and keep pricing in check, but housing starts have been decimated, so it will be a matter of time before we start to see a refresher on prices again,” says Alexander.
Buyers Are Still Cautious
Despite TRREB’s optimism, Canada’s interest rate cuts haven’t exactly opened the floodgates to a wave of buyers who’ve been waiting on the sidelines. In a dramatic roller coaster of a housing market – especially in recent years – GTA buyers are still proceeding with caution, according to the region’s realtors.
“Although many real estate professionals felt that a single rate cut was going to bring buyers back in droves, myself and many others didn’t think that would happen and it hasn’t,” says David Elliott, a Toronto-based realtor. “Even a second rate cut has not sparked a flurry of action as some had expected. In my opinion, I think we are going to need to see an overnight lending rate around 4% or below to really have a wave of buyers enter back into the market with confidence.”
Elliott also highlights that the GTA has gotten back to a more typical summer market. “Over the past number of years, we got used to being somewhat busy throughout the entire year,” he says. “But we have to remember that the summertime is usually a slower time for real estate transactions in general. Everyone is enjoying the summer weather, taking vacations, and spending time with their families before their kids go back to school. The last few years were so out of the ordinary that people felt that they had to jump on opportunities before they got snatched up or before prices went up as quickly as the next week or month. The number of overall transactions have basically returned to levels we saw in 2018 and 2019 before values really started to take off.”
While Toronto realtor and personality James Milonas says some buyers are indeed still cautious this summer, he says his luxury-only set of clients in particular are less fazed by things like interest rates. “There are those in the ‘luxury’ segment that aren't worried and they're buying because they see the long term picture,” says Milonas.
Milonas says the media plays a role in the readiness of prospective buyers to enter the market (noted). “Toronto is a very media-centric city," says Milonas. "We could beat this down the throat of buyers all day long, but until the media says rates are dropping and now is the time to buy; people won't. Those who are smart and can see past the short-term pain we are in are making moves and are being able to purchase at a lower price point without competition right now.”
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The Condo Market Has Cooled
It’s no secret that the GTA condo market has taken a hit as of late. In fact, in June, TRREB has reported more than an 80% year-over-year increase in active condo listings in the second quarter. In July, the market saw nearly a 64% increase in active condo listings compared to the same month last year. Active condo listings totalled 8,979 in July, up from 5,416 in July 2023. Furthermore, quarterly numbers released last week revealed that listings in Q2 2024 jumped a shocking 83.6% from the same six-month period in 2023.
Despite this influx of options and relatively accessible selling prices, however, would-be condo buyers aren’t budging.
“There had been some hope amongst condo sellers and realtors alike that the two recent interest rate drops would bring more buyers out but it seems that buyers are still trigger-shy, and for good reason,” says realtor Michael Camber of The Camber Group, which specializes in condos. “Rates dropping from 5% to 4.5% made a relatively immaterial difference to affordability for many buyers. Condos tend to attract first-time buyers who are just starting to accumulate equity and are the demographic most sensitive to higher costs. We are still not yet at a point where the rates are low enough to bring the buyers back in droves. I suspect we need to get to or below 4% to see any significant change in first-time buyer spending power.”
The Camber Group tends to do most of their work in Toronto’s downtown west areas, like Liberty Village, King West, Queen West. “In July 2024, there were 61 condo sales in our area,” says Camber. “July 2023 is when we first hit 5% rates so sales volume was very similar in July 2023 with 64 sales in our area. If you compare the last two Julys to July 2020, when the market was still roaring, there were 103 condo sales in our area that year.”
As for the sellers, Sara Camber, who is also with The Camber Group, says that most know what kind of market they are dealing with when listing, so those who are able to wait are waiting. “Rewind to April 2024 and fewer condo owners were aware of what was ahead so we saw a significant surge in listed condos just after Easter that just kept building through May, June and July,” she says. “It feels like it has finally tapered off a bit now.”
With that said, condo prices haven’t taken as much of a hit as could be expected, given these market conditions. “Given the significant quantity of condo inventory and the minuscule number of serious buyers over the summer, I have been most surprised at the resilience of condo values in the downtown core,” says Sara. “Sure, prices have come down a little, but definitely not as much as one might think given the dynamics at play. This tells me that there are not a lot of truly desperate sellers. We've seen our fair share of lowball offers this summer, but sellers are still pushing back and waiting for the right offer to come in. You won't see this as much in a market where sellers are truly desperate.”
When it comes to the embattled pre-construction market – where developers have had to contend with high supply costs and development fees, in addition to sky-high interest rates – Debbie Cosic paints a slightly different picture in terms of potential buyer frenzy.
“I'm seeing that the buying public is there and is waiting,” says Cosic, who is the CEO and Founder of In2ition Realty, which specializes in new builds. “Because whenever we offer a tremendous deal at one of our sites, we get a flurry of activity. It shows that the public is wise and is waiting for the best deal possible.”
In fact, Cosic says that there hasn’t been a better time to buy a new build than in this marketplace. “There are some exceptional offerings out there that I haven’t seen in the last decade being put on the table by developers that are plugged into today’s buyers’ demands,” says Cosic. “There are shrewd buyers that are taking these deals and buying, and we believe this is the lowest point of the marketplace. Rates will come down, but prices will not come down. So, if they purchase now, they are in a winning situation.”
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Further Rate Cuts Are Needed
One thing both realtors and Canada’s top economists can agree on is that the cost of borrowing is expected to decline in the coming months. In fact, in a revised forecast, BMO’s chief economist, Douglas Porter, says that Canada could be in store for rates to hit 3.5% by January before dropping to 3% by mid 2025.
And, while some prospective buyers may be getting their feet wet this summer, it will really take further cuts before we see a notable impact on the market, say GTA realtors.
“I think September's rate cut will bring a new push to the market as we always pick up in the fall,” says Milonas. “Activity has definitely picked up since the last rate cut, but still not enough to move the needle where it needs to be.”
However, further rate cuts will help as we move into the fall. “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. “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.”
As for the condo market, any sort of reversal may take more time. “The number one question we are getting right now is: when will conditions for selling a condo improve?,” says Michael. “I wish I knew for certain but I don't see any significant change coming till at least 2025. Two things will have to happen before we see a surge in buyer activity or even a surge in condo values. One, interest rates will need to drop another 0.5% at a minimum. And two, we need to see some absorption of the current glut in available inventory. Whether that means sellers pull their condos off the market in the short-term or some of the inventory ends up selling, we need to see fewer available listings.”
After 22 years of selling condos downtown, Michael calls the current market one of the most challenging that he’s seen. “That being said, it's a safe bet that dynamics will change and we will see a surge in demand and prices again. It may take another year or two but it will happen,” he says.
Beyond Rate Cuts
While interest rates inevitably play a major role in market activity, it’s important to consider the larger picture.
“Although future rate cuts are on the way to give buyers and home owners up for renewal some breathing room from rate peaks, there is still so many other factors that are clearly impacting home values and the number of transactions and those include the current cost of living, housing affordability, current and future economic conditions, of course interest rates, government policies and more,” says Elliott. “Simply stating that the market is due for a massive rebound solely based on lower interest rates is a dangerous statement and doesn’t paint the full picture, in my opinion.”
Cosic too says that Canada needs to look beyond just interest rates. “Rate cuts are a start to a stronger market, but we need other fundamentals to come into place to bring back a steady marketplace,” says Cosic. “These fundamentals are like getting rid of the stress test and possibly obtaining a further 35-year amortization. It’s also important to be able to purchase with a lower deposit for true first-time homebuyers.”
In the meantime, all eyes will be on the BoC for its next interest rate announcement on September 4. “We have several more months to see how things will play out, and we will get a much better idea of consumer confidence come fall,” says Alexander.
