January 2023 Market Update

Retrospective of January 2023

The eye-catching headlines will read that the Toronto and Greater Toronto Area (GTA) home prices dropped 14.2 percent relative to January 2022 with a decrease in number of transactions within the Toronto and GTA area dropping 44.6 percent relative to January 2022.  It is important to put these effective headlines to attract readers attention into perspective.  January 2022 was less than 30 days from the peak of the market (February 2022) to which we subsequently experienced the notable shift in the real estate market spurred by eight interest rate adjustments throughout the remainder of 2022.  The context outside of the statistics is important: January 2022 prospective buyers were rushing to purchase with the expectation of increasing interest rates which fueled and created an overheated market.  Comparing January 2022 to January 2023 has its merits; however, for those looking to understand what is the market doing right now it can be more effective to look at month over month trends.

When looking at the month over month (December 2022 to January 2023) trend we find that Toronto and the GTAs composite home price index (HPI) benchmark price fell by only 0.23 percent ($1,078,900 from $1,081,400).  The HPI is calculated using a statistical model that considers a home’s quantitative (e.g., the number of rooms and bathrooms) and qualitative (e.g., whether it has a finished basement) features.  The HPI is traditionally less volatile than average and median measures which can swing dramatically in response to changes in the number of very expensive or inexpensive sales from one time period to the next.  Also telling is that when looking at the standard average price change from December 2022 to January 2023 we see a small drop of less and 3% there as well to $1,066,668 from $1,099,125.  Activity level month over month was nearly identical with January 2023 having had 3,110 transactions relative to December 2022 with 3,100 transactions (0.32 percent increase month over month).  Reviewing the January 2023 statistics with the above noted lens it is apparent that the month was stable relative to the prior month.

What Trends Are We Seeing?

As illustrated below and noted above the main trend we are seeing in the statistical analysis of the figures is STABILITY.  However, having our pulse to the market we are noticing something very different.  In the last third of the month of January 2023 activity level from buyers increased notably.  The expansion of multiple offers where we have seen up to 35 bidders for a single property has re-appeared.  The Bank of Canada announced a 25 basis point increase in rates while at the same time signaling that ongoing rate increases was on a pause.  Short term borrowing costs increased, however, negotiated medium-term rates, like the five-year fixed rate, have started to trend lower compared to the end of 2022.  Buyer behaviour from the back end of January 2023 suggest those buyers who were sitting on the sidelines have come out to participate in the real estate market.

The above noted trend intertwines well with those that take the position that housing supply and demand from immigration are not the main drivers of a heated or cooled real estate market.  Over the past two decades we have seen three periods that resulted in aggressively surging prices throughout Canada (2002 to 2007, 2016 to 2018 and during the pandemic) which were all preceded by the largest increase in the number of houses on a per capita basis.  It seems that supply and house prices were not connected as closely as most thought; credit conditions have been the driving factor.

Understanding that the driving factor behind buyers decisions to enter the market seems to be the borrowing environment, to which stability is on the horizon along with a social acceptance that current borrowing costs are in alignment with long term averages (albeit higher than the nearly free money offered during the pandemic) we may see a healthy 2023 where buyers come off the sidelines to participate in the real estate market and sellers realize they can achieve their lifestyle goals with stable sale prices to their existing assets and on the purchase of their next one.

Clarity is providing comfort to both buyers and sellers who are going to no longer hedge their bets looking for the bottom of a market to subsequently take action.  Buyers aren’t holding off for the bottom of the market anymore afraid they may miss it and sellers have grown tired of waiting to take action plus are seeing that they can make money on the sale of their asset.

What is Happening with Sale Prices

Average sale price for all property types for the month of January dropped by 16.4% year-over-year to $1,038,668 in January 2023 from $1,242,407 in January 2022. Month-over-month we saw a -1.38% decrease from December 2022 to January 2023. On TRREB, for Toronto and the GTA, when broken down by product type and comparing January2022 to January 2023and December 2022 to January 2023, the average sale prices changes are as follows:

Number of Transactions Trend

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

• When comparing January 2023 to December 2022, 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 January 2023 and December 2022 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