Ragona Sisters

Market Update – March 29, 2023

To stay informed for our clients on the Real Estate Market, our team attended the Toronto Real Estate Board Market Outlook for 2023 – for the GTA and surrounding areas.

Here are the main points

  • Many First time homebuyers will enter the market. They would rather own than rent
  • Mass increase in immigration will create larger demand for rentals and double digit rental increases
  • Properties listed under 1 million will be very popular for most buyers
  • Properties listed over 1.2 million will move a lot slower
  • The most favorable home types will be semi-detached and townhomes
  • New condo buldings will slow down
  • Detached homes will be fewer on the market compared to last year
  • Average home price for all home types will be 4% lower than 2022 to a price of $1,140,000

Home sales will remain on a relatively flat trajectory in the first half of 2023. The looming affects of higher borrowing costs and economic uncertainty, will impact buying intentions. However, the second half of 2023, a resilient labour market and downward trending fixed mortgage rates, will promote an increase in home buying activity.

For the calendar year 2023, there will be a total of 70,000 transactions through the Toronto real estate board on the MLS system. While the sale total will be below the 2022 results, there will be remarkable improvement on a monthly basis, especially the second half of 2023.

The most recent polling results from late fall of 2022 suggests, an increase in demand for home ownership through the year. Overall buying intentions were up compared to the fall of 2021 with 28% of respondents indicated that they will consider the purchase of a home in 2023.

Listing inventory will continue to be a problem in 2023. The economic downturn will be shallow and brief. There will be no widespread panic for sellers to list their home. This means, as the demand for home ownership gradually increases in the second half of 2023, market conditions will tighten, while inventory levels are expected to remain low historically. Recent polling suggests the share of homeowners considering putting their home up for sale may increase in 2023 to 39% compared to 35% of the year prior. More importantly, this increase in listing intentions is entirely driven by those who say they most likely will list in 2023.

Listing intentions for detached homes were down 39% compared to 2022, the lowest level since polling started asking this question on behalf of the Toronto Real Estate Board. This suggests two things: we will see an uptick in Listings for more affordable home types, but as overall demand in home ownership picks up, we could see fairly tight market conditions for detached homes

Home prices are expected to remain stable in the first half of 2023. In line with the trend experienced in the Greater Toronto Area since August 2022. However, competition between Buyers will increase in the second half of this year exerting renewed upward pressure on homes.

The more affordable market segments including condominium apartments and townhomes, will likely lead the initial pace for the recovery phase for 2023 as a whole. Expect the average selling price to reach $1,140,000 for all home types combined. This will be up compared to the average prices in the second half of 2022, but down by approximately 4% compared to 2022 as a whole. This outlook follows listing price intentions collected by polls where the average listing price is expected to be down year-over-year in 2023

The GTA population will continue to grow at a record pace in 2023 as the region continues to be in a single greatest metropolitan beneficiary of immigration in Canada. As these new households look to take advantage of the GTA’s cultural and economic diversity, they will require a place to live. While immigrant households have a higher potential to eventually purchase a home, many of these newcomers will initially choose to rent due to affordability issues. This factor would add steam to an already competitive rental market, supporting the continuation of double digit, annual average rent increases.

We will continue to look at the housing market through the lens of borrowing costs for 2023. The view, however, will change. Whereas most of 2022 was characterized by steep upward trend in interest rates, the curve will flatten and start to point downward in 2023.

The consensus view is that inflation will ease as we move through the year, ending between 2-3%. Because of the expectation, we are already seeing lower bond yields for medium-term Government of Canada Bonds yields. By the end of 2023, the 5 year fixed yield will have dipped at least 50 basis points from the beginning of the year. Any unexpected dip to economic growth could cause bond yields to recede even further. In this case, it is possible that the Bank of Canada could actually reverse course and introduce a cut to its target for the overnight lending rate by the end of the year as well.

All else being equal, a dip in borrowing cost will be beneficial for homebuyers as we move through 2023. Initially, lower borrowing costs coupled with lower home prices will see average monthly payments decline, which intern could promote increase in buyers moving off the sidelines and back into the market .

Overall, Buyers will still be faced with the OSFI stress test, which increasingly became disconnected from reality as a rate tightening cycle progressed in 2022. There were periods in 2022 when mortgages were given stressed rates, greater than 7% – even above the benchmark at 5.25%. The Government needs to revaluate the stress test as today’s market is very different than exactly one year ago.

Please note, although the TREBB predicted the following, no one has a crystal ball. If conditons in the market change that is not expected, the outlook could be very different. Political agendas also play a heavy role in the Real Estate Market. See current Political Advocacy here

Stay informed and Stay Educated
Have a blessed day!