With respect to interest rates and inflation, it can be expected that we will see additional interest rate increases in December 2022 and the beginning part of the New Year. The magnitude of said interest rate increases will have to be seen; however, the markets are expecting at least another 50 to 75 basis points before interest rates stabilize. Once stabilized, it is our belief that buyer sentiment will change as the risk of the unknown will become reduced and buyers can make purchase decisions based on predictable borrowing costs. The reduction of interest rates may begin end of 2023 or commencing 2024 depending on how the local and global economies dip in and out of recession. It should be noted that reductions will not be bringing interest rates to COVID-19 base levels.
It is our belief that as interest rates stabilize, supply of housing units remains low or slightly increases, and immigration continues with individuals/families that have purchasing power, we will see seller markets re-emerge pending location and price points in 2023. Perspective is everything in real estate, keeping in mind that the average price is still 30% higher now than pre-COVID-19 levels. When looking at market conditions from this point of view, one begins to take comfort in the value of their existing real estate assets and the prospect of entering the market or adding to a real estate portfolio starts to become a reality.
What is Happening with Sale Prices
Average sale price for all property types for the month of November dropped by 7.2% year-over-year to $1,079,035 in November 2022 from $1,162,564 in November 2021. Month-over-month we saw a 0.98% decrease from October 2022 to November 2022. On the Toronto Regional Real Estate Board (TRREB), for Toronto and the GTA, when broken down by product type and comparing November 2022 to November 2021, and October 2022 to November 2022, the average sale prices changes are as follows:
| Sale Price Comparison | ||||
| Product Type | Changes from November 2021 to November 2022 | Changes from October 2022 to November 2022 | ||
| Toronto | GTA | Toronto | GTA | |
| Detached | -13.8% | -10.9% | -3.0% | 3.1% |
| Semi-Detached | -17.1% | -13.7% | -2.7% | -4.2% |
| Townhouse | +1.4% | -8.7% | -0.8% | -2.6% |
| Condominium | -1.5% | +0.3% | -0.7% | -3.1% |
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What trends are we seeing?
The trend that we have seen over the last few months has continued where the drop in average sale price on the Toronto Regional Real Estate Board (TRREB) from the February 2022 peak to the current month is +/- 20% (-19.1% from February 2022 to November 2022). The month over month change in average price since July 2022 has essentially remained flatlined with modest increases and decreases within the one percent range. From a sentiment perspective, buyers who are interested in being active in today’s real estate market are challenged with becoming accustomed to new norms i.e. higher interest rates, notable lack of inventory. While sellers have been hesitant to list as they are pining over February 2022 peak prices figures, we are noticing that most sellers are beginning to recognize that the end objective can be met by the absolute dollar value differential between a sale and a purchase. When sellers look objectively at the net dollar differential, they realize that they can have their change in lifestyle and still meet their financial goals.
What lies ahead for 2023?
When looking at what lies ahead moving into the New Year, we factor into our thought process several different economists and their viewpoints.
David Rosenberg recently reviewed his predictions at the Ontario Real Estate Boards Reality+ conference predicting an expected price adjustment in the upcoming year anywhere between an additional 20% to 40% reduction from peak market values of February 2022. Much of his analysis is a function of various ratios reviewed pertaining to home affordability such as average sale price to rental rate, average sale price to earnings etc.
Benjamin Tal took a different perspective at the TRREB annual conference. While an expectation of decreasing prices exists, the magnitude predicted is closer to the 15% to 20% range. Understanding the immigration patterns and that of those immigrating into Canada, many of them are already in Canada and simply taking permanent residency, are educated individuals/families with secure jobs and strong incomes and thus are in a position to continue purchasing real estate.
Number of Transactions Trend
When comparing November 2022 to November 2021, we saw the following trend:
| Categories | November 2022 | November 2021 | Percentage Change |
| Number of Transactions | 4,544 | 8,979 | -49.4% |
| Number of New Listings | 8,880 | 10,044 | -11.6% |
| Number of Active Listings | 11,910 | 6,086 | 95.7% |
When comparing November 2022 to October 2022, we saw the following trend:
| Categories | November 2022 | October 2022 | Percentage Change |
| Number of Transactions | 4,544 | 4,961 | -8.4% |
| Number of New Listings | 8,880 | 10,390 | -14.5% |
| Number of Active Listings | 11,910 | 13,023 | -8.6% |
Looking into the different geographic pockets of Toronto and the GTA we notice the following changes in number of transactions when comparing November 2022 to November 2021 and October 2022. The breakdown per area and product type are as follows:
| Number of Transactions Comparison | ||||
| Product Type | Changes from November 2021 to November 2022 | Changes from October 2022 to November 2022 | ||
| Toronto | GTA | Toronto | GTA | |
| Detached | -40.6% | -48.2% | -9.5% | -11.0% |
| Semi-Detached | -40.3% | -53.8% | -15.9% | -11.4% |
| Townhouse | -53.3% | -44.0% | -3.8% | -6.4% |
| Condominium | -54.5% | -55.9% | 1.2% | -13.3% |
Footnote: Source of statistical data is from the November and October 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
