The Greater Toronto real estate market, has witnessed a mixed bag of trends in recent months. While the price of a typical home continued its upward trajectory in June 2023, the rate of increase was notably lower compared to previous months, suggesting a potential slowdown. Additionally, affluent suburbs experienced a decline in prices, with one area witnessing a substantial drop of $50,000.
Positive Momentum Persists
Greater Toronto real estate demonstrated another month of gains, bolstering confidence in the market. The TRREB composite benchmark rose by 0.6%, equivalent to a $6,900 increase, bringing the average home price to $1,171,300 in June. Although prices remain 1.9% lower compared to the previous year, this substantial increase indicates positive momentum in the market. Analyzing the monthly and annual data provides valuable insights into the market’s performance.
Changing Growth Rates
The monthly growth rate has been rising at an impressive pace, exceeding three times the target inflation rate. However, it is significantly smaller than the soaring increases observed in recent months. A few months ago, the benchmark surged by over $27,000 monthly. While a 0.6% increase is noteworthy, it pales compared to previous figures. The rise in financing costs is likely a contributing factor to this deceleration in growth.
Recovery or Bull Trap?
The annual growth rate reveals that home prices have almost recovered from the losses incurred over the past year. Some investors interpret this as the end of a correction phase, but it is important to note that prices remain 11.4% lower than the peak. The current scenario could indicate a recovery, but it is equally plausible that it is merely a “bull trap” phase within the asset cycle. Only time will unveil the true trajectory of the market.
Diverging Prices Across the Region
Price divergence across the Greater Toronto area is becoming increasingly evident. Home prices in the City of Toronto are rising at a faster pace compared to the broader region. The composite benchmark for the city climbed by 1.0% in June, amounting to a $11,600 increase, and now sits 1.5% lower than the previous year. Positive annual growth may be achieved in just two months if the current growth rate persists. However, the overall trend indicates a slowdown, and with anticipated interest rate hikes, sustaining upward price movement will prove challenging.
While the city experiences price gains, several affluent suburbs in Greater Toronto have witnessed declining prices. Oakville, which had seen prices rise by tens of thousands per month, experienced a significant setback in June, with a 3.4% decrease amounting to a staggering $50,000 drop in typical home prices. Oakville is not alone, as other close suburbs, including Halton Hills, Halton Region, Milton, and Burlington, also recorded notable declines ranging from 2.5% to 3.0%. These occurrences raise concerns about the market’s overall sentiment.
Emerging Trends in Smaller Markets
Amidst the varied landscape, a few smaller markets experienced noteworthy price increases, although not as substantial as the declines observed in certain suburbs. Pickering saw the largest surge, with prices climbing by 3.0% ($31,800) in June. Brock followed closely, which recorded a growth rate of 2.6% ($18,700), followed by Dufferin County with a 2.4% increase ($19,300).
Potential Risks on the Horizon
The sharp price increase is not entirely unexpected, considering the rising interest rates. Panicked buyers have been rushing to take advantage of mortgage pre-approvals, fearing they may face higher interest rates and reduced leverage if they delay. However, as these pre-approvals expire, the market may experience a shift that reflects prevailing financing conditions. With an anticipated interest rate hike this month, higher borrowing costs present additional risks to the Greater Toronto real estate market.
Greater Toronto real estate has shown signs of growth and slowdown, creating a complex landscape for investors and potential homeowners. While prices continue to rise in the city, declining prices in affluent suburbs and the imminent impact of rising interest rates raise cautionary flags. As the market unfolds, it is crucial to closely monitor the evolving dynamics and make informed decisions based on comprehensive analyses.