FEBRUARY 2023
RARE MARKET REPORT
By DANIEL FOCH
Director of Economic Research
A RETURN TO SEASONALITY?
PRICES DOWN ANNUALLY, BUT UP MONTHLY.
The Toronto real estate market is looking at a drop of 17.9%, of its largest drops in prices on record. At the same time, we’re seeing prices jump up substantially into the spring market. This marks the first increase in prices since August of last year – a relief from the downtrend we’ve been seeing since the peak of the market in 2022. It’s unclear whether or not we’re seeing a return to a seasonal market cycle, where prices rise into the spring market, or if we’re seeing volatility happening as a result of the market’s dependence on the Bank of Canada’s 5-year Bond Yield.
With volume down 47% since the peak market of last year, one thing is for sure: real estate professionals are certainly feeling the changing market, even if clients aren’t. There is a lot of pressure on the spring real estate market to support the Canadian economy, with commissions as a big portion of GDP, and home equity a large source of household wealth. Only time will tell how this current trend materializes in the spring market.
INFLATION
The Bank of Canada has walked themselves into a trap
- Rising mortgage costs are contributing to inflation at the highest rate since the 1990’s
- Per Ben Rabidoux on Twitter: “Annual change in mortgage interest cost index in CPI is largest since data started in early 90s. Rising mortgage interest costs alone added 0.6 percentage points to the headline 5.9% print.”
- This means that over 10% of current inflation was a result of mortgage cost increases
MORTGAGE RATES
The biggest drop in house prices since the global financial crisis.
- CREA is reporting the largest year-over-year drop in prices since 2009
- Buyers psychology slowly begin to feel more comfortable as prices get lower:
- there is less risk below them (closer to the bottom)
- there is more upside above them (further from the previous top)
- Buyers typically wait for downward trajectory of price to stop to see a “bottom”
- The next few months, year-over-year price declines will appear the worst, due to the market peaking in February/March 2022.
- The market appears hopeful that buyers begin entering after seeing those drops with the idea that “it can’t get worse than that”
HOUSING MARKET
- Mortgage applications are up 48% per RATESDOTCA, indicating that buyer opportunism could be returning to the market
- Fixed mortgage rates are now lower than variable interest rates
- Buyers typically choose the lower rate
- 75% are choosing fixed rates now
- Variable rates are priced based on BOC (Bank of Canada) overnight rate
- Fixed rates are priced based on GOC (Government of Canada) Bond Yields
- Homebuyers now depend more on the Bond Yields than the bank of Canada
- Bond Yields are up, over the past few years and most experts believe yields are indicating the market believes interest rates will be higher for longer.
