Rob's Real Estate Report
October 2023 Housing Stats & Analysis
By Rob Pilon: It's bad out there folks, real bad, and not getting better. Of course there are exceptions with many properties selling with sought-after upgrades and renovations, located in demand areas, and not over-priced. But the average home and condo is languishing on the market, some still not selling after numerous price reductions.
Let's deal with a distubing trend. I use this word because after four months of something happening on a consistent basis, we can call it a trend.
Look at the 4 tables below. Monthly sales are ordered from lowest to highest. The problem is not difficult to spot:
Yellow highlights in the above tables reveal the following:
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2nd lowest number of sales in the GTA in July compared to all the other Julys in the last 21 years
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lowest number of sales in the GTA in August compared to all the other Augusts in the last 21 years
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lowest number of sales in the GTA in September compared to all the other Septembers in the last 21 years
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lowest number of sales in the GTA in October compared to all the other Octobers in the last 21 years
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I just checked accumulated sales in the major TRREB regions for the period of November 1 to 10, and if the remainder of November is similar to the first 10 days, then November is on track to have the lowest number of sales in the GTA in November compared to all the other Novembers in the last 21 years. TRREB will release November's stats in the first week of December.
Lots of "not so good" records are being set here. Low sales reflects low buyer demand. A record low number of sales over the last 4 months represents a systemic shift of buyer sentiment and buyer activity to the downside. Many buyers are waiting for mortgage rates to come down and they're reading the same articles you are. They know mortgage rates will remain high until inflation is under control so most are staying on the sidelines until that happens, especially given that a majority of buyers believe home prices will remain flat or will drop further in the interim.
Holding off from buying is not just physchological or strategic. It's also real. Less buyers can qualify at prevailing high qualifying rates. Sellers with low mortgage rates don't want to "move-up" and be saddled with blending their low rate with a high one. Most investors have exited the market because negative cash-flows are much higher than during the condo rush a couple of years ago, and today's negative cash flows can't be offset by high principle build-ups (in low-rate mortgages), or yearly condo appreciation which is virtually non-existant. Not only are home owners not leveraging their equity into investment properties, the opposite is true. Many are de-leveraging. Investors with multiple condos are attempting to off-load some because the prospect of high-rate mortgage renewals on two or more condos can be financially untenable. That's why the current condo market is faltering as more investor product hits the market with falling buyer and investor demand.
1,296 condo apartments sold in all TRREB regions in October. That's the lowest amount of sales for any October in the last 20 years. There were 4,588 new condo apartment listings that came out in October. That's the 2nd highest number of new condo listings for any October going back 27 years, which helped push up total unsold condo apartment listings at the end of October to 6,959 which is the 2nd highest number of unsold listings at the end of any October in the last 27 years. In all TRREB regions, the average months of inventory (MOI) for condo apartments is 5.4 months. Mississauga condo apartments are at an alarming 6.2 months of inventory. Low condo sales coupled with a balloning number of unsold condo listings doesn't bode well for the condo market.
Here's another record. There were only 2,157 detached houses that sold in October in all TRREB regions combined. This is the fewest number of detached houses that sold in any October in the last 27 years, dating back to 1996 when TRREB began tracking this data. That's pretty shocking but not entirely surprising because detached homes are the most expensive property type and are therefore the least affordable in this high mortgage rate environment.
Four months of record low sales in 2023 can be viewed as a micro-adjustment, but look at the 2nd line in all 4 tables above. The second worse year for record low sales in August, September and October was in 2022. That means last year and this year experienced record low sales. That's a macro adjustment in the market and should be taken seriously when forecasting the near future. These low sales were a direct result of BOC rates moving from 0.50% in February 2022 at the peak of the real estate market to 5.00% today. Don't expect meaningful price appreciation and high sales volume until rates subside.
Looking at average prices in the table above, we saw a 3.4% price increase in September, but as I mentioned in last month's market report, that was caused by an 11.3% increase in Toronto prices which elevated TRREB's total average to 3.4% in September from August's prices. I further noted that Toronto's 11.3% increase was due to a far greater number of properties selling over the $2M range in September (185 sales) versus only 112 properties that sold over $2M in August.
Total TRREB average prices rose a flat 0.6% from September to October which was underwhelming given October represents the peak of the fall market historically.
Turning to the Sales to New Listings Ratio (SNLR) in the table above: September's dismal and record breaking low SNLR of only 29% improved to 32% in October because October is a stronger month than September, but in all the October's going back 21 years, this October's 32% SNLR was the worst. In other words, the total sales in October 2023 was the equivalent to only 32% of all new listings that came on the market in October 2023. That's incredibly low for the historically strongest month in the fall.
All unsold listings at the end of October are added to previous month's unsold listings which results in an average of 4.2 months of inventory (MOI) for all property types across all TRREB regions combined. Months of inventory answers how many months it would take to sell off all unsold listings added up at the end of October at the monthly rate of October's sales, and if no more listings came on the market. October's 4.2 months of inventory is a stark contrast against May's 1.3 months of inventory. The market peaked in May of this year as home prices increased each month from January to May due to 5-year fixed mortgage rates falling from 4.39% in January 2023 to 4.29% in May 2023, before rising through the summer. Also, 5-year variable rates remained steady at 5.55% from February 2023 to June 2023 because of the BOC's rate hold from January 26, 2023 to June 6, 2023. This mortgage rate reprieve coincided with the spring market this year which traditionally brings out the buyers, hence the run up on prices.
It doesn't appear that this coming spring's mortgages will match these rates, especially for variable rate mortgages which are tied to the BOC rate which is not expected to reduce until summer of 2024. However, 3-year to 5-year fixed mortgage rates are tied to Government of Canada bond yields, and it's possible yields will fall further at some point in the first half of 2024 if the economy weakens in early 2024. As the economy softens, investors rush to buy bonds that generate a higher yield. If demand for bonds increases, then bond holders selling these bonds can lower their yield and still attract buyers due to heightened demand. Buyers flock to purchase bonds when the economy falters because they know their central banker will begin reducing the bank rate to stimulate economic growth which lowers yields everywhere. It's basically a rush to buy bonds at decent yields before interest rates get reduced. It'll be interesting to see how the economy and inflation fares in the first quarter of 2024, and what impact that will have on mortgage rates as the spring market gets underway. One thing is certain, there's a serious backlog of buyers in all TRREB regions that have been denied their shot at owning a home due to high qualifying rates. If those rates begin to weaken, a subset of those buyers will storm the gates, as we saw this spring. We've entered volatile and unpredictable times. Should be fascinating to see how 2024 shapes up.
To examine real estate stats and trends in individual cities and towns, please reference the tables below:
