May 2022 has marked a visible shift in the market. The trend of rising interest rates that began in March of this year has now markedly impacted the number of properties sold and average sale prices across Toronto. While these values have been trending downwards since February’s record-breaking highs, the declining numbers do not necessarily indicate a market correction but instead a market coming to grips with increased rates. The impact of higher mortgage rates is two-fold, both economic and psychological, especially to buyers who are most sensitive to these changes and who are impacted by affordability.
When we look at sectors least affected by rising rates, particularly the condo and luxury home markets, we see that the patterns of demand are still well in effect. For example, the condo market has been performing well, with 1,264 sales reported in May in the City of Toronto with an average sale price of $793,124. This is a marked increase from May 2021, where the average sale price was $766,462. The average list-to-sale ratio also remains at a strong 103%.
On the other end of the spectrum, properties with a sale price of over 2 million dollars were also not as heavily affected. Across the Greater Toronto Area, the number of sales declined by 38.8% from May 2021 to May 2022 for all home types. Yet, homes sold above the $2 million mark only saw a reduction of 22%, a very significant difference.
An interesting point of note is the notable shift in where properties are transacting. During the first two years of the pandemic, the 905 region exceeded the 416 region in both unit sales and average sale price due to demand for larger living spaces and ground-level housing. However, as vaccination rates have increased and many amenities have reopened, the 416 now has a higher average sale price than the 905 by 1.7%. Last year, the 905 region accounted for 66% of all properties sold, while in May 2022, that number was only 62%.
Housing demand will continue to be supported by the same unchanged factors that existed over the pandemic: low unemployment rates, high job vacancies, rising incomes and record immigration. We see many ready buyers attending showings and open houses on the ground level. Many are still motivated by pre-approvals with lower rates (most expiring before the fall) or have alternate personal circumstances that require them to transact in the short term. Showings are now primarily “quality over quantity.”
If anything, buyers seem unsure of what to offer due to this overall shift in the psychology of the market. One buyer recently remarked that “nothing has sold lately to indicate where the market value currently is.” So we are left at a stalemate with some listings where the offering is appealing, the price aligns with the sales data, but buyers don’t know what discount to apply (if any) to the comparable sales that transacted even a month ago. I still remark that the right time to buy your perfect house is when the perfect house comes up, especially now if you can negotiate on the value!
For further reading, please take a look at Chestnut Park CEO Chris Kapches’ market report for May 2022.