The real estate market in the Toronto area suffered a major blow last year from high interest rates and a sluggish economy, resulting in the lowest sales in 23 years.
According to data from the Toronto Regional Real Estate Board (TRREB), only 65,982 homes were sold in 2023, the lowest number since 2000 — when Toronto had about two-thirds of its current population. Even in the 2008 financial crisis, home sales reached 74,500. In contrast, home sales hit a record 121,700 in 2021, when buyers took advantage of historically low interest rates amid the pandemic.
The report said that home sales in the GTA in 2023 were 12 percent lower than in 2022. “We hit a record number of sales in 2021, and last year, we came in shy of 66,000. It really illustrates the impact that higher borrowing costs have had since March 2022,” said TRREB chief market analyst Jason Mercer. “There is a real affordability challenge, and make no mistake, many want to purchase a home whether they’ve lived here their whole life or moved here recently. But the higher interest rate environment has been a real roadblock.”
New listings also dropped by 6.6 percent year-over-year in December despite a spike in the spring and summer. Mercer said that the increase in new listings earlier in the year was due to more activity in the spring when the Bank of Canada paused its rate hikes.
“When the market picks up, that’s when people want to put their home up for sale,” he added. “There was also the potential of rate cuts coming at the end of 2023, which never came to pass.” Instead, the Bank of Canada raised rates twice more in June and July, cooling down the sales activity in the fall.
“Not only did interest rates jump higher, hurting affordability further, but there was also a psychological hit,” Mercer said. “People are really taking a wait-and-see attitude until the Bank of Canada signals or begins cutting rates.” The average selling price for all home types in 2023 was $1,126,604, which was 5.4 percent lower than in 2022. In 2000, when sales numbers were this low, the average price of a home was $243,000.
The average selling price in December was $1,084,692, which was almost $3,000 higher than in November on a seasonally adjusted monthly basis.
The average price for detached, semi-detached and townhomes all rose year-over-year by 2.5 percent, 1.7 percent and 5.5 percent, respectively, while condos saw a 3.1 percent drop. The condo market faced a tough year, as many investors who were over-leveraged sold their units at lower prices.
The report said that the demand for housing was still high in 2023, driven by record immigration, but more of this demand was directed at the rental market.
“In the condo market, which offers a lot of rental supply, or purpose-built rental, there have been extremely tight conditions, low vacancies and competition creating a strong upward pressure on prices,” Mercer said. “If we continue to see record population growth at a record pace, there will be continued pressure unless more supply comes to market.”
The situation could improve soon. Economists predict that the Bank of Canada could start lowering rates by April, which could boost buyer demand. This could revive the market by spring, Mercer said.
Bond yields are already falling, leading to lower interest rates on five-year fixed mortgages, he said, which indicates that the Bank of Canada will reduce rates in the first half of 2024.
“Would-be homebuyers need rates to come down by a certain amount in order for them to enter the market,” Mercer said. “They’re still waiting to see what happens, so market activity really depends on when the bank will cut rates and by how much.”
