Steady Prices, Shaky Foundations

Toronto Metro’s real estate market slowed in December, as both sales and new listings saw declines. While active inventory shrank, it remained elevated compared to previous years. Prices held steady overall, though trends varied across property types, and rent prices fell below 2022 levels. The new construction sector faced challenges, with record-low sales and subdued housing starts and completions. Despite a 0.5% interest rate cut by the Bank of Canada, housing affordability worsened due to higher fixed mortgage rates, while rising unemployment and mortgage arrears added additional pressure on the market.

Toronto Metro sales fell in December to 3,359, both nominally and seasonally adjusted. This marked a 43% drop from the previous month, a 2% year-over-year decline, and 29% below the 10-year average. Sales typically decrease between October and December.

New listings dropped in December to 4,681, reaching its seasonal low. This was a 60% month-over-month decline but a 20% year-over-year increase, aligning with the 10-year average.

Active inventory fell in December but remained steady after seasonal adjustment. At 15,393 units, it was down 29% month-over-month, up 48% year-over-year, and 79% above the 10-year average. Active inventory typically declines from September through December.

The market balance indicator, Months of Inventory, weakened in December. It was 130% higher than the 10-year average, with condos as the weakest sector. Historically, this balance level corresponds to an annual price decrease of 3%.

Another market balance indicator, the Sales-to-New Listings ratio, became stronger in December. It was 30% below the 10-year average, with historical data indicating an annual price decline of 6% at this level. Typically, this indicator strengthens after September, reaching its seasonal peak in December.

December saw mixed price trends, with some metrics stable and others falling. The benchmark price, representing a typical property, remained unchanged from the previous month at $1,061,900. Overall, prices were relatively stable year-over-year and 20–23% below their 2022 peaks.

The Toronto Metro rental market weakened in December but displayed slight seasonal strength for the third consecutive month. The months-of-inventory indicator, reflecting market balance, remains one of the weakest in 12 years. Historically, the rental market softens significantly between August and December.

In December, the average rent in Toronto Metro declined to $2,826, down 3.7% year-over-year and 0.8% below 2022 levels. Rent prices typically drop between August and December.

November’s new construction sales were 78% below the eight-year average, with a 12-month total of 9,623 units—a 72% drop from the historical average. This marks the lowest total since at least 2016, surpassing last month’s record.

In November, the high-rise benchmark price rose 1.1% month-over-month to $1,017,664 but declined 2% annually and was 19% down from its peak. The low-rise benchmark price increased 0.5% monthly to $1,557,486, down 2% year-over-year and 19% from its peak.

November housing starts were 34% below the 10-year average. Over the past year, 38,174 units were started in Toronto Metro, 3% below the historical average.

Housing completions in November were 42% below the 10-year average. However, the 12-month total of 40,570 units was 14% above the historical norm.

In December, the lowest 5-year fixed mortgage rate rose by 0.1% to 4.14%, while the lowest 5-year variable rate decreased by 0.5% to 4.35% in response to a 0.5% interest rate cut by the Bank of Canada. The gap between the two narrowed to 0.21%.

Housing affordability in Toronto Metro worsened slightly in December, driven by a modest rise in borrowing costs. Covering mortgage payments on a newly purchased property now requires 55% of a typical household’s income, up from 54%.

Ontario’s unemployment rate rose to 7.6% in November, a 25% annual increase and 14% above the 10-year average. Nationally, the rate climbed to 6.8%, 3% above the 10-year norm. In Toronto, it reached 9.2%, the highest level since May 2012, excluding the pandemic.

Ontario’s mortgage arrears rate increased to 0.17% in September, a 70% rise year-over-year and 59% above the 10-year average. Nationally, the rate remained at 0.2%, a 25% annual increase but 11% below the 10-year average.