What was your prediction of the Toronto real estate market at the start of 2023?
Up? Or down?
Now that the first quarter of 2023 is behind us, I think it is pretty obvious that we won’t be seeing another 30% drop.
In fact, the market is turning the opposite direction.
This episode will be packed with a lot of information.
I’m going to share a quick summary of the market report, followed by what we saw in the front end resale, pre-construction and rental markets.
Then I will discuss 3 main factors driving home sales in Toronto for the rest of 2023.
Let’s dive in.
In March, the market continued to turn its direction towards recovery.
Last year, from February to March, we saw a 20% increase in sales activity.
And that’s typical as we move from winter to the spring market.
What’s the increase from February to March this year?
In terms of the average price, it was just around 1.2% higher in March.
Generally speaking, prices are slightly trending higher, but still more or less flat.
However, listings are selling a lot faster now.
We listed a 2 bedroom unit just south of Yonge & Bloor, with walking distance to the University of Toronto.
It was sold with an unconditional offer in just 10 days at $925,000.
The price was 2.2% higher compared to 6 months ago with the same unit on a higher floor.
What about the pre-construction market?
Because it was the most investor-heavy segment of the market, it got the biggest hit in terms of sales volume.
Remember I was telling you 80% were scared away and only 20% saw the opportunity.
A couple weeks ago, I told you about the Union City project in Unionville, Markham.
It went absolutely insane.
There were a couple thousand worksheets for only 440 units.
Are all pre-construction projects this crazy?
Of course not, it is only because of the uniqueness of Union City.
But it is definitely a sign that tells us even investors are returning to the market.
If you look around the globe after all kinds of crises in the past few years, I’m sure you agree that Toronto remains one of the safest places for investments.
Now, let’s talk about the 3 main factors that are going to drive home sales in Toronto for the rest of 2023.
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Factor #1 Work Permit Holders
We always talk about immigration being the support of the Toronto housing market.
Can we quantify that? There’s no official numbers.
Maybe I can shed some light based on what we are seeing on the rental market.
We leased 89 units in the past 3 months.
Guess how many are tenanted with work permit holders?
Around 60 to 70%.
You see, that’s very significant.
We also have a couple work permit holders working in our admin team.
On March 27, one of the girls asked me, “Does this amendment allow me to buy a property now?”.
She has always wanted to own instead of rent, but she couldn’t because of the Foreign Buyer Ban.
Suddenly, her dream came true because the Foreign Buyer Ban was amended.
Effective March 27, work permit holders are allowed to purchase ONE residential property, so long as they have 183 days of validity remaining on their permit.
You see, roughly 60 to 70% of renters are work permit holders.
They have been fuelling the rental market and pushing rent up.
Now that they are allowed to purchase, they are going to be a driving force to the sales market as well.
Besides, immigration is not slowing down in any way, we are going to keep seeing new people.
Factor #2 Rent vs Borrowing Costs
Over the past year, many potential home buyers were worried about the market uncertainty and higher interest rates.
So they stepped to the sideline and decided to rent instead.
Now their 1 year lease is almost up and they have to make a call.
Continue to rent? Or buy now?
Yes, variable mortgage rates are still high because they are directly related to the overnight interest rate.
But fixed mortgage rates actually continue to trend lower because of the lower bond yield.
If you haven’t watched the video explaining the relationship between fixed mortgage rates and bond yield, you can click the link below to watch it afterwards.
So on one hand, fixed rate borrowing cost is decreasing.
On the other hand, rent inflation in Toronto was over 20% year over year.
I can foresee some people moving from the rental market into getting ownership.
Factor #3 Inflation Rate
Canada’s inflation rate dropped to 5.2% in February.
Keep in mind that the inflation rate is measured year over year.
You can say that the interest rate hikes are working to tame inflation.
But it is also because prices have already gone up so much over the past couple years, when you compare this year’s prices with last year, obviously we are not going to see that big of an increase.
In any case, if inflation is coming down, there’s no incentive for the Bank of Canada to hike the interest rate again to hurt the economy.
Let’s sit tight and wait for the interest rate to start coming down.
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