As promised, we are doing a comprehensive market analysis this week.
2021 and 2022 are both very dramatic years in the Toronto real estate market.
Dramatically up, then dramatically down.
How much have prices really dropped?
Let’s check it out!
[Opening]
Let’s start with the sales activity in 2021 vs 2022.
As you can see, there is a big gap between the two years.
In 2022, the number of sales is generally 40 to 50% less than in 2021.
So the market has been much quieter this year because of the much higher interest rates.
There were always talks about how people can’t afford their mortgages anymore and are forced to sell.
Is the market flooded with desperate sellers then?
Let’s take a look at the number of new listings this year versus last year.
Both years have very similar trends.
And in general, we had 10 to 15% fewer listings this year.
So there were actually fewer people wanting to sell this year.
Don’t see any warning signs of desperate selling here.
Now, here comes the most interesting part that you have been waiting for.
Prices.
Average and median prices could paint a very misleading picture for us because for one thing, we had 50% fewer transactions this year and second thing, it’s been much tougher to sell multi-million dollar properties.
If you don’t understand the problem with average and median prices, make sure you review the explainer video at the link below.
So we will be looking at the MLS Home Price Index instead, it gives an “apple to apple” comparison of home prices based on the features of a home.
Let’s start with the Home Price Index for detached homes in 2021.
The year started off with a price of $1.13 million dollars and ended with $1.51 million at the end of the year.
That’s a shocking 33% increase within just 12 months.
So in 2022, we started at around $1.6 million dollars.
Prices continued to go up and went past the $1.7 million dollars mark in March.
Then the dramatic drop happened and we are now back to $1.37 million dollars.
If you compare the price now to the peak in March, then it’s a dramatic 25% drop in just 8 months.
If you compare it to a year ago, then the drop is only 6.3%.
In 2021, so many people wanted to buy a low rise home as an investment because the appreciation was indeed very attractive.
But I warned you.
You need to be prepared for the roller coaster ride and it’s not so easy to find quality tenants.
Only recommended for sophisticated investors.
How were things in the condo market then?
In 2021, prices also pretty much went all the way up, not as crazy as in the detached market, but still up 24% in just 12 months.
From around $580,000 to over $710,000.
In 2022, prices peaked in April at around $825,000.
Then prices started coming down as well, but not as dramatic as in the detached market.
If you compare the price now to the peak, it’s a 13.8% drop.
But if you compare it to a year ago, it’s actually still up by 2.4%.
If you have been holding cash this past year, you have already lost 7% to inflation.
I think we’ve seen enough to say that the Toronto condo market is very resilient.
It survived the pandemic when downtown was a ghost town.
And it’s now surviving the aggressive rate hikes.
Why?
It’s actually very simple.
People need a place to live and there are more and more people coming.
Condos are entry level products, so they are a necessity.
Going back to the price graphs…
Do you see an important trend in both the detached and condo graphs?
That’s right.
The steep price drop has ended.
Prices are flattening out.
Which way do you think prices would go in 2023?
Comment below with your predictions.
In upcoming episodes, we will discuss factors that would affect which way the housing market goes.
If you haven’t subscribed, make sure you do that now so you won’t miss important market updates like this one.