July 2023 Market Update – Setting the Pace for Fall

What Trends Are We Seeing?

Perspective will be important with respect to the interpretation of the July 2023 statistics recently released.  When considering year over year comparisons we note that number of sales recorded on the Toronto Regional Real Estate Board (TRREB) for July 2023 was 7.8 percent higher than that of July 2022.  It is important to keep in mind, that for many, July 2022 is viewed as the bottom of the market adjustment which occurred in 2022.  It was subsequent July 2022 that we saw balance and incremental increases in both number of sales and average price on a month over month basis.  More notable is that existing month over month trend which is developing.  The number of sales on TRREB for July 2023 is down approximately 30 percent from June 2023 and nearly 42 percent from May 2023.  As we wrote in our last newsletter there were two contributing factors to the change in pace of the market i) an adjusted market and ii) seasonal lulls June, July and August which are generally seen in a standard year.  Overall sentiment is that the changing pace with reduced transactions can be most predominantly attributed to an adjusted market versus seasonal lulls.

With respect to pricing, we are seeing stability.  The average sales price on TRREB for July 2023 was up 4.2 percent from July 2022 with the seasonally adjusted average sale price in July 2023 being down 0.7 percent from June 2023.  Note however, this is the first time since February 2023 that we have seen a pullback to the seasonally adjusted average sale price from the prior month (even though minimal).  The narrative of varying transactional activity as a result of differing supply and demand factors fluctuates; however, for over 12 months now we have seen price stability or escalation.

What Lies Ahead?

As we edge towards the Fall 2023 market one can likely expect a similar August 2023 with dampened number of sales and either stable or slightly reduced average sale prices relative to month over month comparators.  The Fall 2023 market is one that is expected to be lagging prior expectations at the commencement of the year due to limited supply and rising borrowing costs.  Many households have adjusted to the increased borrowing costs; however, with greater uncertainty of how much more they will increase as the Bank of Canada struggles to find an effective way to truly impact the drivers of inflation, buyers and sellers alike may sit on the sidelines.  September 6^th rate announcement will likely set the pace for buyer and seller sentiment over the Fall 2023 market.  Should a rate increase occur, there may be an initial flurry of activity with those who have locked in rates looking to capitalize by making a purchase and then decreased activity heading towards year end.

Other initiatives which are showing signs of impacting the market to take note of are i) the first home savings account and ii) the Canadian Revenue Agency new home renovation tax credit.

Financial institutions are seeing a very quick uptake on new accounts for the first home savings account (FHSA) which allows first-time homebuyers to save for their first home tax-free, with annual contribution limits of $8,000 and lifetime of $40,000.  While the aggregate amount may not cover the deposit needed in the Toronto and Greater Toronto Area for the average home; the aggressive adoption of FHSA is indicative of many people planning to purchase in the future.

The Multigenerational Home Renovation Tax Credit (MHRTC) was introduced this year to allow the cost of renovating a home to create a secondary unit for a family member.  If you spend $50,000 (or more) on the residence to create a separate unit one is eligible for up to a $7,500 credit.  This may shape some in-progress or planned renovations to include separate entrances, full baths and kitchen/kitchenettes.  The trickle down effect may be seen for years to come with many more residences boasting more than one kitchen and able to accommodate multi-generational families.

Ultimately what lies ahead is dependant on the extent that inflation, employment and immigration provide certainty to the market.  Supply shortages will be the underlying narrative.  With certainty the market will be one that is competitive for buyers with prices once again escalating.  To the extent that these factors provide uncertainty to the market, depressed number of transactions can be expected to occur; however, not necessarily resulting in increased affordability due to supply and demand imbalances.

What is Happening with Sale Prices

Average sale price for all property types for the month of July increased by 4.2 percent year-over-year to $1,118,374 in July 2023 from $1,073,213 in July 2022. Month-over-month we saw a -5.36 percent decrease June 2023 to July 2023. On TRREB, for Toronto and the GTA, when broken down by product type and comparing July 2022 to July 2023 and June 2023 to July 2023, the average sale prices changes are as follows:

Number of Transactions Trend

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

When comparing July 2023 to June 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 July 2023 to July 2022 and June 2023. The breakdown per area and product type are as follows:

Footnote: Source of statistical data is from the July 2023 and June 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