Drop in Toronto detached home sales in November caused by inflation and interest rates

Toronto’s dramatic decline in sales of detached houses and townhomes last month can be chalked up to high prices and interest rates that have put off would-be buyers, industry experts say, while low inventory is keeping the price from dropping.

Sales of townhomes in Toronto fell 20 per cent last month from November 2022, while the sale of detached homes dropped 14.5 per cent over the same period, according to a report from the Toronto Regional Real Estate Board (TRREB). Prices for detached homes, meanwhile, increased by 3.5 per cent.

“There is not a lot of people selling right now, so there is still a strong amount of demand to keep the prices stable,” said Ira Jelinek, a realtor with Harvey Kalles Real Estate.

On the demand side, sky-high mortgage rates are playing a large role in the lack of sales of these housing types, experts say, as townhouses and detached homes are among the most expensive properties.

“It would make sense that you’re seeing an above-average dip in sales in that detached segment, quite simply because it’s the more expensive segment,” Jason Mercer, TRREB chief market analyst, previously told the Star.

Experts say investors make up a large chunk of the market, however, traditionally, they’re not looking for single-family homes in the city, Toronto-based mortgage broker Ron Butler said.

“It’s become too expensive, that’s just the bottom line … Particularly in the single-family space, and in the townhouse space, those prices are still just too high.”

Prices are too high — in conjunction with high interest rates — to make these homes attractive to investors, as those considering a purchase might think, “maybe I can do it, but I can’t get the right rent to make it work,” Butler added.

 

 

There were 4,236 sales of all types in November across the GTA, the second lowest month for sales so far this year besides January. Sales dropped a little more than 8 per cent from October 2023, although they edged up on seasonally adjusted monthly basis.

“For the last eight years, it’s been the opposite, where prices just keep going up and sales keep going up. But for the last two years, it’s been going down,” said Jelinek.

“It’s the best buyers-market we’ve ever had,” if you can afford to take on the debt, he said.

While condo sales in the suburbs edged down 0.5 per cent in November year-over-year, the price jumped 6.4 per cent to $689,654.

Butler said there is “far better opportunity” for first-time homebuyers to find the down payment on this kind of home right now.

In Toronto, the average price for a condo dropped 1.7 per cent, while the number of sales also decreased by 8.2 per cent.

Christopher Alexander, president of Re/Max Canada, said he was encouraged to see the numbers go down less than 2 per cent.

“Sales for condos always seemed to do well when affordability in the freehold sector is challenged,” he said. “So if a detached or a townhouse is harder and harder to carry because of interest rates, but people want to buy, they’re going to go for the affordable option which is typically a condo.”

Butler said the overall increase in condominium listings and transactions in the GTA could, in part, be the result of the city and federal government cracking down on people who profit from short-term rentals like Airbnb.

He pointed to British Columbia, where new provincial legislation restricting residents from listing their investment properties on short-term rental platforms recently led to an increase in sale listings in Victoria. Many of the investors who bought homes to rent out are now trying to leave the business before registering with the province, Butler noted.

 

 

“The Victoria condominium market just exploded with available sales. They’re not selling, but all of a sudden, the inventory of listings just expanded.”

In Toronto, ten downtown condo buildings have more than 50 units on short-term rental sites, with nearly 8,000 operating across the city. Describing the situation as a “canary in a coal mine,” Butler questioned whether an increase in the number of condo listings the result of owners having trouble renewing their mortgage.

Or, he added, “if you’re an Airbnb person, and you think there is any chance of the same rules that B.C. has brought in suddenly showing up in Toronto, you would just say, ‘No. It’s time to get out. It’s too dangerous now.’”

Experts anticipate the market will remain cool for the next few months, saying it tends to be most active in the Spring. “If you’re a buyer and there’s property on the market right now that you like, chances are you can probably deal because most sellers that are on the market right now are motivated,” Alexander said.

The market tends to slow down between November and January, added Jelinek, “but eventually, we’re going to start seeing the Bank of Canada saying we might start dropping the rates.”

 

 

 

This article was reported by The Star