Podcast 30: The Bank of Canada Paused Rates. What's Next?
Podcast 30: The Bank of Canada Paused Rates. What's Next?
Let's ignore all the negative headlines in the news AND the overly positive ones too, and let's just get into the facts. Let me give you my take on what I see in the first quarter of 2023 for the GTA Real Estate Market, and how it performed for the month of February, with an increase of 5.5% month-over-month in terms of the average price and over one and a half times the previous month's sales volume.
Let's also look at the shortage of new listings, resulting in bidding wars. Are they here to stay?
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PODCAST (VIDEO):
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Hi everyone, Kenneth Yim here from Keller Williams here to give you a market update. We’re going to ignore all the negative and overly positive headlines in the news, they need to make headlines so that they get eyeballs. In this video, I’ll just give you the facts on how I see the first quarter of 2023 shaping up.
If you haven’t already, please subscribe to this channel so that you stay tuned with all the market analysis I’m putting out. At the end of this video, if you got some value out of it, please give it a thumbs up to help my ratings so that I can push this out to more people just like you.
I’m recording this on March 8, 2023. This morning, the Bank of Canada announced no change to the overnight lending rate, which was mostly expected. They’ve already done a lot of damage to lots of different markets in the effort to combat inflation. What they do going forward is anyone’s guess, no one really knows. You may have your opinion, I know I have mine, but let’s just put that aside for now because there are so many factors that go in to inflation, whether it’s demand side or supply side inflation, and what other countries and financial markets around the world are doing.
So let’s just dive in to the Greater Toronto Area MLS market stats and look at the facts. The overall TRREB market performed really well in February, up +5.5% month-over-month in terms of the average price, and up over one and a half times the previous month’s sales volume. You have to be careful using month-over-month numbers, because it doesn’t account for seasonality. Nevertheless, it’s still a strong indicator of what’s happening, despite it being lagging indicators. On the ground level, I know that we are dealing with multiple bidding wars in the lower and sometimes higher price brackets, just depending on if it’s a unique property or not.
Depending on your property, like if it’s the typical property and not super unique, then it traditionally is a great time to sell at this time, from mid January all the way to March Break, because everyone waits to list until after the holidays to put their homes on the market. There will be more listings later in March, and even more in April. So that’s why we’ve been seeing the bidding wars lately, there’s simply no inventory because no one really wants to sell unless they got a good deal on their next purchase or could repurpose those funds or they’re in a distressed situation or life situation. Life doesn’t stop. Anyway. our market is short by -41% year-over-year for new listings.
That being said, we are still down by -18% in terms of average price from last year, and down -47% in terms of sales volume, since the rate hiking cycle started in March so February had a full month of peak sales. Despite this, the cost of capital is way more expensive, so monthly carrying costs for the vast majority of people that don’t buy all-cash have gone up. So, we’ll probably see the year-over-year average price growth continue to decline until about May or June since there was still lots of sales going on back then, as long as the market doesn’t just go absolutely bananas over the next few months. We saw the largest month-over-month average price growth since January of last year, but keep in mind that it’s the largest year-over-year monthly average price drop in the last 26 years since the data was available.
The Toronto condo market has seen a larger percentage of sales, about 30% of total overall sales, probably because not as many people are buying in higher end homes. Those people presumably are a little more financially independent and can hold out, or maybe they pause their plans of selling because they have the space and don’t have an urgent need to down size.
Average sales-to-ask ratios are higher than they’ve been for a while, with properties selling on average at 100% of asking prices. Again, that’s probably because of the bidding wars due to the -41% drop of new listing inventory.
Looking forward though, it’s going to be hard to keep a lid on the home prices because inventory will continue to remain low and we will have strong demand over the next few years.
Toronto developers are pressing the pause button on 10,000 units as the presales market slows down due to the effects of higher interest rates. Rental apartment construction is also slowing by 50% as construction costs continue to rise. And to top that all off, we expect to welcome over 500,000 new immigrants to Canada by 2025. The GTA typically gets about 35% of these new immigrants. Meaning we could see over 175,000 new immigrants to the GTA, where a normal year is about 100,000 to 110,000, and forecasted to grow by 1.27 million from 2021 to 2031. These projections were made by the Ontario ministry of finance BEFORE the rate hiking cycle, so it’s probably a conservative number. So all of this is happening as supply ramps down and demand grows. It doesn’t take a genius to figure out what’s going to happen in the horizon.
Home ownership trends are going to continue to decline, and rental growth will continue to explode, and supply won’t be there to balance things out.
In closing, with interest rates stabilizing in 2023, we should start seeing modest growth in the real estate market and into 2024. The rental market as a landlord is very optimistic in the near, medium, and long term. We need more policy to encourage rental construction, whether it’s purpose built rental or individual investors of condo units, if we hope to see rental prices ease over time.
Again, if you got any sort of value out of this, please give me a thumbs up, and don’t forget to subscribe. Other than that, I’ll see you next week. Bye!
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