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Can Toronto Real Estate Market Survive Another Interest Rate Hike?

At the beginning of June, the Toronto Real Estate Board released the latest market watch report.


I’m sure you have already seen numerous headlines saying that home prices are surging again in Toronto even with the high interest rates.


But how far are we from the peak prices in early 2022?


Are detached houses recovering faster than condos?


Does it make a difference whether it is 416 or 905 area?


I’m going to answer all those questions in this video.


This past Wednesday, the Bank of Canada made a surprise move to raise the key interest rate again by another 25 basis points.


Is that going to kill the housing market again?


I’ll give you my take at the end of the video.


Alright, let’s dive in.



Let’s start with detached houses.


We’ll take a look at sales volume first, then we will get to the average price.


This is the sales volume graph for the 905 suburb areas from January 2022 to May 2023.


The sales volume spiked at the beginning of 2022.


Then it went downhill all the way through 2022 because of all the rate hikes.


Come 2023, things started turning direction.


Sales volume has been climbing all the way, it is now around 23% below the peak volume.


How about the 416 City of Toronto area?


The sales volume in 416 is roughly just one-third of that in 905 because one, 905 has double the population; two, 416 has a high concentration of condos.


The 416 graph has pretty much the same shape as the 905.


It is interesting to note that the 416 sales volume in May this year was almost back to the peak volume, only around 13% less.


So in terms of sales activities for detached homes, 416 is recovering faster than 905.


What about prices?


Here’s the average price graph for 905.


We had the peak price at almost $1.73 million dollars.


Then it took a deep dive down.


The price drop was as steep as 25%.


Similar to the sales volume, prices started turning around in 2023.


This may be a little bit of a surprise to you, detached home prices haven’t actually recovered that much overall in the 905 area.


We are still almost 20% down from the peak price, sitting at around $1.4 million dollars.


What about detached home prices in the City of Toronto?


From peak to trough, the drop was 28%.


But the recovery has been significantly faster than 905.


The average price is now back to $1.9 million dollars, only 8.4% down from the peak.


I did not expect 416 to be so much stronger given that work from home is still a thing.


But apparently, data is telling us that the desire to live in the city is still very strong.


Now, let’s turn over to condos.


By the way, if you like this kind of comprehensive data analysis, make sure you subscribe and hit the bell for more.


This is the sales volume for 905 condos.


Similar to detached homes, things started to recover in 2023.


And 905 has been busy, sales activities in May were only 16% below the peak.


Let’s check out 416.


Sales volume is roughly double that of 905 because there are obviously a lot more condos in the City of Toronto.


In terms of sales activities, the recovery is not as fast as in 905, we are still 26% down from the peak.


Is it the same thing for price?


Here’s the average price for condos in 905.


There were some ups and downs and the biggest drop was not as deep as in the detached market.


The peak to trough drop was just under 17%.


But the recovery has been quite slow, with the average price still down 12%.


Let’s check out condos in the City of Toronto.


Similar to the detached market, the recovery in the city is much faster than in the suburbs.


The average price in May was just 5.9% below the peak.


I think we’re seeing some very interesting data here.


Let me summarize it for you.


Detached

Area

May 2023

Peak 2022

% Difference

416 - City of Toronto

$1,913,132

$2,073,989

-8.41%

905 - Suburbs

$1,444,234

$1,727,963

-19.65%

Condos

Area

May 2023

Peak 2022

% Difference

416 - City of Toronto

$784,914

$831,351

-5.92%

905 - Suburbs

$677,874

$760,410

-12.18%

As you can see, both detached homes and condos are more expensive in the City of Toronto and you have to pay double the land transfer tax.


Yet, recovery is faster, prices are not that far off from the peak.


905 detached homes boomed the most during the pandemic and it is also the segment struggling the most to recover, with prices still down around 20%.


It seems that the pandemic did not permanently alter the trends in the housing market.


People still want to live in the city and condos are still in demand.


Of course, we are observing a general trend here.


If you are focusing on, say, a very popular neighbourhood in Markham, then your observations may be different.


It is important to understand both the micro and macro markets.


This past Wednesday, June 7, the Bank of Canada made a surprise move to raise the interest rate again by another 25 basis points.


Our GDP is higher than expected, unemployment rate remains at record low and the housing market is coming back strong.


Is the housing market going to get hit again?


People have accepted the high interest rates and made adjustments accordingly, that’s why they are back to the housing market.


But another rate hike would have a psychological effect on people’s decision making.


They would become hesitant.


So I think we would see a bit of a pause in this recovering market.


But in terms of prices, I don’t think it would have too much of an impact because the longer term projection is still for rates to come down in 2024.


I will of course keep you posted on rate hikes and market trends. If you want to stay on top of the market, make sure you subscribe and hit the bell now.


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