By Rob Pilon: Average prices fell 1.3% in June, then fell again in July by 5.4%. The average price now sits at $1,118,374 (see table above). That's still 7.7% above January's price of $1,038,668, but down a sizable 16.2% from February 2022's peak of $1,334,544. In 2023, prices peaked in May at $1,196,101. 

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June 2023 average price was $1,182,120.

July 2023 was $1,118,374. That's a $63,746 spread or a 5.4% decline.

 

Let's compare this to the June to July prices in 2022 and 2021.

 

June 2022 price was $1,146,254.

July 2022 price was $1,074,754. That's a $71,500 spread or a 6.2% decline.

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June 2022 price was $1,089,536.

July 2021 price was $1,062,256. That's a $27,280 spread or a 2.5% decline.

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The large price decline from June 2022 to July 2022 was due to the threat of prolonged and aggressive mortgage rate increases to quell mounting inflation (Bank of Canada increased their overnight rate by 0.50% on June 1, 2022, and then again by 1.00% on July 13, 2022 in the wake of Canada's shocking 8.1% inflation rate in June 2022).

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In the past 20 years, average home prices declined from June to July except in the first leg of the pandemic in July 2020. The Bank of Canada dropped it's overnight rate 3 times in March 2020 to 0.25% because of a world-wide economic slow-down and plunging oil prices which negatively affected one of Canada's major economic pillars. Oil prices hemmoraged due to an oil price war between Russia and Saudia Arabia, each of whom realizing that oil revenues, which accounted for the bulk of their economies, were about to suffer. They jockeyed for scraps and market share. The shelter in place and work at home policies coupled with a collapse in diesel fuel consumption from a halting transportaion industry and subsequent supply chain backlogs drove oil prices down further. Gas prices plugged to 65 cents/litre in Toronto in March 2020. The Bank of Canada wanted to desperately restimulate the ecomony by dropping the overnight rate to 0.25% which caused the prime rate to drop which caused variable mortgage rates to fall. The BOC also executed an unprecidented campaign of quantitative easing by purchasing $5 Billion of Canadian Bonds each week. This level of demand on bonds caused bond yields to descend rapidly. Consequently, lower bond yields caused fixed mortgages to drop. The housing market ground to a virtual halt in April 2020 because of the state of emergency lockdown on March 17, 2020 and the uncertainty of whether buyers could bring the virus into seller's homes. Pundits began predicting years before the housing market would recover. But because real estate sales were deemed an essential service, buyers and sellers found a way to protect themselves during showings with masks, on-site hand sanitizers, "no touching surfaces" and "no kids" showing policies. Agents had to sign waivers before every showing stating that neither they nor their clients had covid symptoms and were not in contact with any person who did. This became the new normal. Buyers who were in high paying professions and impervious to job loss during the pandemic began to flood the market looking for larger houses and yards, being cooped up at home with work and kids. Many seized an amazing opportunity to move-up or purchase investment condos afforded by historic rock-bottom mortgage rates.

 

And that background leads to why July 2020's prices were higher than June 2020's, which as mentioned never happens. After April 2020's housing meltdown, buyers surged into the market. Basically, the spring market of 2020 was postponed to the summer. July and August 2020 sales were 11,035 and 10,741 respectively - unheard of in TRREB's history.

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Well, the party's over, evidenced by the paltry 5,250 sales in July 2023 in all TRREB area. That's the lowest number for all Julys going back 20 years, with one exception. Last July. As alluded to, July 2022 was on the cusp of the most aggressive quantitative tightening regime in Canada, coming off the heels of June 2022's sky-high 8.1% inflation rate. Buyers slammed on the brakes. 

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July 2023's extremely low sales indicates a growing reality that buyers are unable to qualify for mortgages, at least not the size of mortgages that buys them the kind of property they want at today's home prices.

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Look at the sales to new listings column. It's not good either. 

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April 2023 = the equivalent of 66% of new listings sold (that's as good as it got in 2023...it's downhill from here)

May 2023 = the equivalent of 59% of new listings sold

June 2023 = the equivalent of 47% of new listings sold

July 2023 = the equivalent of 38% of new listings sold (that's worse than January 2023's figure of 40% - January was a pretty dead market)

August 1-18, 2023 = the equivalent of 33% of new listings sold (August figures will come out in the near future, but I conducted a preliminary search for the August 1 to 18 period). It appears August 2023 will be worse (33%) than July 2023 (38%), but the rate of decline is reducing. On a side note, it also appears that August 2023 sales will be the same or very slightly more than July 2023 with York being the only regional exception. York may have slightly fewer sales in August than July, but overall, hopefully the downward trend of monthly sales is stabilizing.

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The % of homes that sold over the asking price has been reducing since May 2023:

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May 2023 = 49% of all properties sold over the asking price

June 2023 = 45% of all properties sold over the asking price

July 2023 = 40% of all properties sold over the asking price

August 1 - 18, 2023 = 32.9% of all properties sold over the asking price

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More and more properties are experiencing failed Offer nights, characterized by a home being intentionally listed below market value and holding off Offers for about a week. In a hot market, this tactic produced multiple Offers on Offer night with the winning bid going over the market value. A failed Offer night will produce little to no Offers, and the prices being Offered are below what the seller expects. The seller rejects these Offers and relists the property above a price the seller hopes to obtain. The seller then waits for a buyer willing to pay a suitable price, failing which, the property is eventually reduced in price one or more times or taken off the market:

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York = 20.2% of all properies currently on the market have been reduced in price

Halton = 19.5% of all properies currently on the market have been reduced in price

Toronto = 18% of all properies currently on the market have been reduced in price

Durham = 16.2% of all properies currently on the market have been reduced in price

Peel = 15.8% of all properies currently on the market have been reduced in price

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Keep in mind, many agents prefer to terminate an overpriced listing, then immediately relist it a lower price to keep the property fresh with ZERO days on market and a more attractive price. These are called listing cancellations and should be treated as price reductions. Therefore the percentages of price reductions are higher than the figures above.

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Months of Inventory made a significant jump upwards in July. Months of Inventory (MOI) has increased from May to July in every city in the GTA. Here's a refresher on what MOI means: let's say there were 1,000 sales in January and 2,000 properties remained unsold at the end of January. How many months would it take to sell all 2,000 properties at the rate of 1,000 sales per month, assuming no new listings come on the market? Answer, 2 months. An increase in months of inventory means the stockpile of unsold properties is mounting. Check it out:

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May = it would take 1.3 months to sell every property currently on the market if no new listings come on the market

June = it would take 1.9 months to sell every property currently on the market if no new listings come on the market

July = it would take 2.9 months to sell every property currently on the market if no new listings come on the market

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July added an entire month of inventory from June's MOI (1.9 months in June to 2.9 months in July). The rate of unsold properties is increasing faster in July. July 2023 is ominously close to January 2023. Jan 2023 had 3.0 MOI. January was a very slow month.

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Below are tables for you to peruse: