Balancing Act

Toronto Metro experienced an increase in new listing activity in July, leading to notable growth in active inventory and a weakening of market balance indicators, accompanied by declining house prices. The rental and new construction segments also showed weakness, with exceptionally low pre-construction sales. Consequently, housing starts have begun to decline, although they remain around typical levels. In contrast, housing completions have remained elevated, reaching new record-high levels. At the same time, mortgage rates have edged lower, driven by another interest rate cut from the Bank of Canada and lower bond yields. This has led to an improvement in housing affordability.

In July, Toronto Metro sales continued to weaken which is expected for this time of the year as sales usually decline between May and December. They declined by 13% monthly, remaining virtually unchanged after seasonal adjustment. Sales were also 3% above last year’s level and 34% below the 10-year average. The total of 5,391 sales was one of the lowest readings for this month since 2006.

New listing activity increased further in July from an already elevated level. Even though the number of new listings declined by 9% compared to the previous month, typically it declines even more as new listings activity subsidies in the second half of the year. Compared to the previous year the number of new listings increased by 19% and was 15% higher than the 10-year average. The total of 16,296 was the highest reading for this month since at least 2006, excluding the pandemic period.

Active Inventory continued to increase in July both nominally and after seasonal adjustment. It grew by 1% monthly and 55% yearly, reaching 23,877 listings – the highest level since 2008 and 50% above the 10-year average. This was an atypical move since active inventory usually declines between May and December, except for an uptick in September.

The market balance indicator, Months of Inventory, weakened further in July, remaining at its worst level for this month since at least 2006. It was double the 10-year average with condos being the weakest sector. Historical data shows prices declining at a rate of 6% per year based on this reading. The real estate market typically slows down 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 July since at least 2006. It was 42% below the 10-year average, with historical data indicating prices declining at a rate of 16% per year based on this reading.

All price metrics declined in July, with a typical property valued at $1,097,300. Prices were down 1-6% compared to last year and were 17-21% 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 gained some strength in July, remaining relatively unchanged after seasonal adjustment. The level of the market balance indicator was the weakest for this month since at least 2012, excluding the pandemic period. The rental market usually gains strength until August and then weakens towards the end of the year.

The average Toronto Metro rent price declined slightly in July to $2,979. This is uncommon for this time of the year, as rent prices typically grow between December and August. Compared to the previous year, the average rent price was down by 4.3%.

In June, new construction sales were 59% below the 8-year average. Over the last twelve months, sales totalled 13,742, marking a 60% decrease from the historical average. This is also the lowest number since at least 2016.

The new high-rise benchmark price stood at $1,023,389, reflecting a monthly decline of 2%, a yearly decrease of 6%, and an 18% drop from the peak. Additionally, the new low-rise benchmark price was $1,613,613, with a monthly increase of 0.1%, a yearly decrease of 6%, and also 17% below the peak value.

After a strong reading in May, housing starts plunged in June to a level 25% below the 10-year average. Over the last twelve months, 44,189 units were started in Toronto Metro, marking a 12% increase from the historical average.

In June, housing completions were 4% above the 10-year average. Over the last 12 months, 49,750 units were completed in Toronto Metro, marking a 40% increase from the historical norm. This also represents the highest number of completions recorded since at least 1972, surpassing the previous record of 49,545 set last month.

Another 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 July. The lowest 5-year fixed mortgage rate decreased by 0.30% to 4.34%, while the lowest 5-year variable mortgage rate dropped by the same 0.30% to 5.40%.

A decline in the Toronto Metro benchmark price and mortgage rates led to further improvement in housing affordability in July. Now, it requires 59% of a typical household’s income to cover mortgage payments for a typical newly purchased property in Toronto Metro, down from the previously observed 62%.

The unemployment rate in Toronto Metro declined further in June, from 7.8% to 7.6%. This represents a 21% increase compared to the previous year and is 4% above the 10-year average. Meanwhile, at the same time, Canada-wide unemployment rate increased from 6.2% to 6.4%.

The mortgage arrears rate in Ontario remained stable at 0.13% in April, reflecting a 63% increase compared to the previous year and 20% above the 10-year average. Meanwhile, Canada-wide mortgage arrears slightly declined from 0.19% to 0.18%, marking a 20% increase from the previous year and remaining 21% below the 10-year average.