February 2023 Market Update

What Trends Are We Seeing?

The big numbers that you are seeing in articles relative to February 2023 activity is that prices are down approximately 18% form February 2022 and that the number of transactions are down approximately 47% from February 2022.  Keep in mind though that February 2022 was the most recent peak of the real estate market fueled by COVID demand and never seen before (in our lifetime) interest rate lows.

The Toronto Regional Real Estate Board (TRREB) also notes that the average selling price for February 2023 totalled $1,095,617, a 5.51 percent increase to the average price of $1,038,390 record in January 2023.

On the ground we know that the real estate market is active and that multiple offers are back in full swing depending on price point and neighbourhood.  Our most recent experiences of this have been around Townhomes priced below $1,000,000 where their sales are not even making it to the offer date as pre-emptive offers take them off of the market in advance of that time.  This is statistically supported by TRREB as it notes the percentage share of homes purchased below $1,000,000 was 57 percent last month, up from 38 percent during the same period last year.  After eight interest rate increases since March 2022 it only makes sense that those who want to or have to buy continue to enter the market; however, at an adjusted price point that they otherwise would have been able to do so if interest rates had not increased.

Supply side constraints continue to be plaguing the real estate industry.  This exists on the macro level with respect to having enough properties built to sustain demand and then on the micro level with respect to of the properties that do exists that are not offered for sale.  The number of new listings in February 2023 was done 41 percent to that from February 2022 with only 8,367 new properties brought to the market.

What Lies Ahead?

Much of the discussion of what lies ahead surrounds interest rates as we will be hearing on March 8^th how the Bank of Canada will proceed.  In March of 2022 interest rates began to increase to combat inflationary pressures that resulted from near zero percent interest rates during COVID that spiked demand throughout the economy.  Other factors that were non-interest rate related such as supply change issues and political unrest with the war in the Ukraine contributed to inflationary pressures.  It is important to understand the current interest rate levels are now starting to look like the normalized figures that exist on a longer-term basis.  As a reminder the low interest rate environment is not to be blamed solely on COVID; we have been in a persistent low interest rate environment for over a decade since the financial crisis of 2008.  The graphic below illustrates the impact of the most recent eight interest rate increases on inflation.

Decreased inflationary pressures along with Canadian Gross Domestic Product (GDP) coming in at zero for the fourth quarter of 2022 are likely enough for the Bank of Canada to hold interest rates where they are.  The real question as it relates to the real estate market will be how things unfold in April and May of this year.  With shorter supply, buyers already showing increased propensity to enter the market and if GDP were to contract, we may see an easing of interest rates that could fuel demand further in the real estate market and thereby create a more aggressive upward pressure on prices.  The impact of supply, interest rate and GDP factors will likely all be contingent on the job market which for now continues to show wage growth, although moderating, that would give purchasers confidence to step into the real estate market.

What is Happening with Sale Prices

Average sale price for all property types for the month of February increased by 17.9% year-over-year to $1,036,668 in February 2023 from $1,334,063 in February 2022. Month-over-month we saw a 5.69% increase from January 2023 to February 2023. On TRREB, for Toronto and the GTA, when broken down by product type and comparing February 2022 to February 2023 and January 2023 to February 2023, the average sale prices changes are as follows:

Number of Transactions Trend

When comparing February 2023 to February 2022, we saw the following trend:

• When comparing February 2023 to January 2023, we saw the following trend:

Looking into the different geographic pockets of Toronto and the GTA we notice the following changes in number of transactions when comparing January 2023 to January 2022 and December 2022. The breakdown per area and product type are as follows:

Footnote: Source of statistical data is from the February 2023 and January 2023 Market Watch report of the Toronto Region Real Estate Board (TRREB) MLS.

A – Monthly Percentage Change in the Number of Units Sold

B – Month Over Month Average Price Percentage Change

C – Seasonally Adjusted Month Over Month Average Price Percentage Change

D – Monthly Percentage Change in Average Sale Price