Deals In The Air

Toronto Metro experienced an increase in new listings in June, resulting in significant active inventory growth and a weakening of market balance indicators, accompanied by declining house prices. The rental and new construction segments also saw weakness, with pre-construction sales being exceptionally low. Despite this, housing starts have remained strong, and completions have reached new record-high levels. At the same time, mortgage rates have edged lower, supported by the Bank of Canada’s interest rate cut and lower bond yields.

In June, Toronto Metro sales continued to weaken which is not uncommon for this time of year, as sales usually decline between May and December. They dropped by 11% compared to the previous month, were 17% lower year-over-year, and 34% below the 10-year average. The total of 6,213 sales was the lowest number recorded for this month since at least 2006.

The number of new listings in June was higher than the historical norm. Even though it declined by 3% compared to the previous month, typically it declines more significantly in June and continues to do so towards the end of the year, except for a slight uptick in September. This indicates that the underlying new listing activity is growing. It was 13% higher than last year’s level and 7% above the 10-year average. The total of 17,963 new listings is the highest for this month since at least 2006, excluding the pandemic period.

Due to the low volume of sales and elevated new listing activity in June, active inventory continued to increase both nominally and after seasonal adjustment. It grew by 9% monthly and 67% yearly, reaching 23,613 listings—the highest level since 2010 and 42% above the 10-year average. This was atypical since active inventory usually declines between May and December.

The market balance indicator, Months of Inventory, weakened further in June, remaining at its worst level for this month since at least 2006. It was 95% above the 10-year average, with historical data showing prices declining at a rate of 5% per year based on this reading. The condo sector remained weaker than the overall market. The real estate market typically weakens between May and December, except for a relatively strong September.

The latest reading of another market balance indicator, Sales-to-New Listings, was also the weakest for June since at least 2006. It was 39% below the 10-year average, with historical data indicating prices declining at a rate of 15% per year based on this reading.

All price metrics declined in June, with a typical property valued at $1,110,600. Prices were down 2-5% compared to last year and were 13-18% below the 2022 peak values. Given the weakness of market balance indicators, further price declines are expected in the near term.

The Toronto Metro rental market remained relatively unchanged in June; however, it weakened after seasonal adjustment. The level of the market balance indicator was quite similar to that observed in 2013, during which rent prices declined by 0.9%. The rental market usually gains strength until August and then weakens towards the end of the year.

The average Toronto Metro rent price increased in June to $2,998. This rise aligns with seasonal trends, as rent prices typically grow between December and August. Compared to the previous year, the average rent price was down by 2.4%. Additionally, the gap between single-family and condo rents continued to widen, remaining above the historical average and indicating a possible relative overvaluation of single-family rents.

In May, new construction sales were 71% below the 8-year average. Over the last twelve months, sales totalled 14,929, marking a 56% decrease from the historical average. This is also the lowest number since at least 2017.

The new high-rise benchmark price stood at $1,043,861, reflecting a monthly decline of 1.2%, a yearly decrease of 5%, and a 17% drop from the peak. Additionally, the new low-rise benchmark price was $1,612,515, with a monthly decline of 0.3%, a yearly decrease of 7%, and also 17% below the peak value.

After showing relative weakness in April, housing starts surged in May, reaching a level 55% above the 10-year average. Over the last twelve months, 48,513 units were started in Toronto Metro, marking a 23% increase from the historical average.

In May, housing completions were 22% above the 10-year average. Over the last 12 months, 49,545 units were completed in Toronto Metro, marking a 39% increase from the historical norm. This also represents the highest number of completions recorded since at least 1972, surpassing the previous record of 48,263 set last month.

The Bank of Canada’s interest rate cut and a decline in the bond market’s inflation expectations led to reductions in both fixed and variable mortgage rates in June. The lowest 5-year fixed mortgage rate decreased by 0.15% to 4.64%, while the lowest 5-year variable mortgage rate dropped by 0.25% to 5.70%.

A decline in the Toronto Metro benchmark price and mortgage rates led to a slight improvement in housing affordability in June. Now, it requires 62% of a typical household’s income to cover mortgage payments for a typical newly purchased property in Toronto Metro, down slightly from the previously observed 63%.

The unemployment rate in Toronto Metro declined slightly in May, from 7.9% to 7.8%. This represents a 20% increase compared to the previous year and is 6% above the 10-year average. Meanwhile, the Canada-wide unemployment rate increased from 6.1% to 6.2%.

The mortgage arrears rate in Ontario remained stable at 0.13%, reflecting an 86% increase compared to the previous year and 20% above the 10-year average. Meanwhile, Canada-wide mortgage arrears stood at 0.19%, marking a 27% increase from the previous year and remaining 17% below the 10-year average.