The Toronto real estate market watch report for August is out.
Overall, sales activities were down 5.3% compared to a year ago.
Active listings were 46.2% more than last year.
Inventories are piling up, especially in the condo market.
How are we doing in terms of prices?
For detached homes, in the 416 area, the average price actually went up 8.3% compared to August last year.
In the 905 area, the average price was down 3.3%.
For condos in the 905 area, the average price was down 4.4%.
Now the hardest hit area, 416 condos.
A high interest rate environment, plus a record number of new condo completions in history; with many investors trying to offload, the average price came down 14.8%.
The condo market is actually surprisingly resilient.
With all the bad things happening at the same time, prices could have come down a lot more than 15%.
The Bank of Canada just announced another 25 basis point cut earlier this week, bringing the overnight interest rate down to 4.25%.
With 3 consecutive cuts, it is very clear that we have now entered the rate cut cycles.
There are potentially 2 more cuts before the end of the year.
So does that mean we are going to see a V-shape recovery in the housing market similar to what we saw after the 2008 financial crisis and the pandemic?
If so, why?
If not, why not?
I’m going to share my personal insights with you.
After the 2008 financial crisis and the 2020 pandemic, we saw quick V-shape rebounds in the Toronto housing market.
This time, let’s just call it the inflation crisis, we are much more likely going to see a U-shape recovery, rather than a V-shape recovery.
It is going to take longer and the process will be more gradual.
And here are the 3 reasons why.
#1 Different Economic Conditions
The 2008 financial crisis was driven by failures in the banking and mortgage sectors.
Governments responded with significant bailouts, deep interest rate cuts and large-scale stimulus packages.
Similarly, the 2020 pandemic brought the global economy to a standstill, but unprecedented fiscal and monetary support, along with rock-bottom interest rates, led to a sharp rebound once restrictions were lifted.
Housing markets, in particular, benefited from this, with low rates and the remote work trend fueling a boom.
However, in 2024, the situation is different.
Persistent inflation is now a central concern and central banks are much more cautious about slashing rates quickly.
Their focus is on controlling inflation, not driving rapid growth.
At the same time, governments have less room to roll out massive stimulus packages like they did before, given the high public debt levels from previous rounds of spending.
This means there’s less direct support to boost the economy quickly, making a sharp recovery less likely this time around.
#2 Affordability in the Housing Market
In 2008 and 2020, housing prices in Toronto were significantly lower compared to now.
So a sudden drop in mortgage rates directly boosted affordability and home buying activity.
Now that home prices are much higher, a slightly lower interest rate doesn’t boost affordability that much.
Besides, the interest rate is still far from the ultra low levels we previously saw.
On top of that, the economy is weak, buyers are more cautious because of the uncertain economic outlook.
Job security and income growth both have to pick up before we can see the effects of the rate cuts in the housing market.
#3 Weaker Consumer Confidence
Consumer confidence is not bouncing back as quickly in 2024 compared to 2008 or 2020.
People are more worried about the bigger picture.
Things like geopolitical tensions, ongoing supply chain issues, and the fact that wages aren’t really keeping up with inflation.
All this uncertainty about the economy, combined with slow wage growth, means buyers aren’t rushing back into the housing market.
Even with the current challenges, the long-term outlook for the Toronto housing market is still strong.
Sure, we are seeing more of a slow, U-shape recovery instead of the quick V-shape we had after past crises, but the key factors that make Toronto real estate solid are still here.
Toronto remains an attractive city for immigration and population growth will continue to keep housing demand steady.
As interest rates continue to drop and inflation starts to ease, we will see buyers gaining more confidence and coming back to the market.
Plus, the current pause on construction due to poor sales will turn into a significant supply shortage in 2027.
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