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Market Updates - The Market is Cooling Fast! What's Next?

Toronto real estate is cooling fast!

Sales were down 41% compared to a year ago and worse yet, the Bank of Canada just announced another rate hike yesterday.

The market has been cooling for almost 3 months now, should you be worried?

To answer that question, we need a much bigger picture.

So let’s take a look at the data for the past 24 months.

We’re going to analyze the sales volume, average prices, 416 vs 905, detached houses vs condos.

Let’s start with detached homes.

We have the timeline at the bottom, from June 2020 to June 2022.

On the left y-axis, we have the average prices starting from $1 million.

On the right y-axis, we have the sales volume, in terms of the number of transactions.

Here’s the graph for the sales volume in the 905 area.

We saw a big spike in the sales volume at the beginning of 2021.

That’s when a lot of people thought they would be working from home forever, so they wanted more space and moved to the suburbs.

Then the sales volume started to go back down and we had another small spike at the beginning of this year.

What about the 416 area, the City of Toronto?

Surprisingly, the sales volume in the 416 area had been pretty consistent over the past 24 months.

The volume we have now in this cooled down market is actually similar to last summer.

Now, let’s check out the average prices.

As expected, 905 prices had been going all the way up and peaked in February this year.

Then it had a steep slide down.

If you compare the average prices now to the peak, we are 21% down, so we are almost back to the price point from a year ago.

But that’s not the alarming part.

The true alarming part is, after sliding 21%, the average prices now are still 32% above June 2020.

If you take the peak prices, they are actually 68% above June 2020.

68% in 1.5 years!

I had to triple check the data to make sure they’re correct.

You see, it’s a must for the government to do something to suppress that kind of price increase.

The challenge is how long they can suppress it for and not let pent-up demand suddenly explode.

We’ll talk more about demand in a little bit.

Let’s take a look at 416 prices first.

The 416 graph looks more normal.

There were actually ups and downs over the past 2 years.

Prices also peaked in February with an average price over $2 million dollars.

Since then, prices have slid almost 20% as well and we are almost back to the price point from 1 year ago.

The price increase from June 2020 to the peak was 36%, still very significant, but definitely not as jaw dropping as the 68% in the 905 area.

Overall, things are much more stable in the 416 area.

Like I always say, the city core always holds its values.

And it will become an even stronger statement after the pandemic because the world sees that people always return to city centres.

Now let’s take a look at the condo market.

The sales volume graphs for the 416 and 905 areas have very similar shapes.

In general, the volume in 416 is more than double that in 905 because there are so many more condos in the city centre.

What about prices?

Prices peaked in March this year and have also slid since then.

But definitely not as dramatic as in the detached market.

416 area dropped 7.8% from the peak, but is still 7.5% above the price point from 1 year ago and 15% above the price point from 2 years ago.

905 area, 9.8% down from the peak, still 13% above 1 year ago and 31% above 2 years ago.

So the condo market has actually been much more stable than the detached market, a lot less drama.

Remember at the beginning of the pandemic, people were saying how downtown would become ghost town and how downtown condo would crash for sure.

You see, time has proven that downtown condos can survive all kinds of down times and is a very stable form of investment.

Of course if you bought a detached house 2 years ago and you sold at the peak in February, congratulations, you enjoyed a huge gain.

The problem is…

The majority of us failed to time the market like that, right?

Going back to the graphs, I think the big question we want to answer is…

How do we know the downward curve won’t go all the way back down to say 2 years ago?

The rental market is going to shed some light for us.

Let’s suppose the economy is bad and there’s not much demand for housing, then the sales market and the rental market should both be very quiet, right?

But what if the sales market is quiet, but the rental market is extremely competitive, what does that tell you?

The demand is there, it is just shifting.

People need somewhere to live, they’re not sure about buying at this point, so they rent instead.

You see, it doesn’t matter whether it’s buy or rent, the need is there.

Let me share some data with you, from our rental department, which should be quite representative of the current market.

Since the beginning of June, units have been renting within only a week on the market on average.

We’re actually facing a lack of inventory right now because the units are renting too fast.

The number of units we have available for rent is 60% less than what we usually have.

Yes, 60% less.

And the rents definitely reflect how competitive the market is.

A 3 bedroom unit with no parking, on College Street at the University of Toronto, was leased at the end of August last year for $3,900.

The tenants will be leaving end of next month so we relisted the unit for rent.

$3,900 last year, guess how much it got rented for this year?


What about a 2 bedroom unit with a parking spot on University Ave?

$4,500 with 1 year rent upfront, only 3 days on the market.

I’ll just give you 1 more example.

2 bedroom unit with a parking spot at Yonge and Wellesley.

$3,950. Multiple offers, all with 1 year rent upfront, only 2 days on the market.

That’s the kind of rental market we’re looking at right now, extremely competitive.

Eventually when rents get high up to a certain point and when it becomes so hard to find a rental unit, people will start thinking about buying again.

At that point, demand will start shifting back to the sales market.

You see, if there’s no demand, then the market will of course be dead.

But if the demand is there, prices can’t go down for very long.

We will just have to wait and see.

As always, invest for the long term, buy and hold.

If you still haven’t subscribed, you should, because you will gain more and more wisdom in the market.


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