Toronto’s housing market expected to ramp up in the fall, as prices and rates continue to drop: Experts
Toronto’s real estate market is betting on more interest rate cuts from the Bank of Canada to stimulate the fall market.
Already the anticipation is having an impact.
“We’re starting to see it on the ground ourselves,” said John Pasalis, president of real estate brokerage Realosophy. “In our business buyers who are interested are jumping into the fall market. We’ve seen an uptick of calls.”
The two busiest times of the year for the real estate market are fall and spring — when hordes of buyers typically come out ready to outbid their rivals. But last fall the market came to a “grinding halt” after the Bank of Canada raised its rate twice over the summer and has remained sluggish since. Experts thought this past spring would revitalize the sleepy market, but it flopped. Buyers remained on the sidelines waiting for interest rates to drop and sellers kept their prices too high, holding onto expectations of exorbitant pandemic prices.
The Bank of Canada’s next interest rate announcement is on Sept. 4, and experts expect another drop of at least 0.25 percentage points — if it happens this would be the third consecutive rate cut, after the bank’s June and July decreases sent its key interest rate from 5 per cent to 4.5 per cent.
That’s not to say the fall market will be “insanely competitive,” Pasalis added, but reasonably priced homes that have sat on the market for weeks will likely see more demand. “The market will be a little bit busier than last fall, which was definitely slow.”
But it’s really spring 2025 to watch out for when interest rates drop even further, experts said.
Home prices forecast to drop
Average sale prices in Toronto across all property types are forecast to drop by two per cent for the remainder of 2024, according to Re/Max Canada’s 2024 Fall Housing Market Outlook Report.
The average price for all property types dropped to $1.106 million in July in the Toronto area.
“There’s currently greater supply than demand, especially in the condo market, so it’s going to pull the average price down for all properties,” said Cameron Forbes, Re/Max Realtron Realty broker.
“We expect prices to pick up again in 2025.”
Buyer activity starting to return
Similar to Pasalis, broker Ralph Fox says he’s also seen a change in buyer sentiment; his practice has more inquiries as people appear interested in entering the market and actively looking at listings this fall.
“We’ve seen an uptick in terms of conversations and transactions with our practice,” the founder of Fox Marin Associates said. “The end of August is typically a slow time in real estate, but we’re already seeing some movement.”
He attributes the change to interest rate cuts.
“The first two reductions by the Bank of Canada were symbolic, showing an end to the rate hike cycle,” Fox said. “But it’s now turned from symbolic to significant because we could see the key interest rate drop to 3.75 per cent by the end of the year and that will have a significant impact on the market.”
But it will take many more rate cuts for the carrying costs to make sense for first-time homebuyers, Forbes said. Especially if buyers are looking for a variable rate, they need to see at least another 1 percentage point drop for the cuts to have meaningful impact.
Condo market won’t come back without investors
The condo market will take longer to recover due to a mountain of inventory as a large chunk of the investor pool has left the market — a significant driver of sales — and end users aren’t interested in buying what they see as overpriced micro-units.
“It will be an investor-driven recovery,” said Phil Soper, CEO and president of Royal LePage. “Right now, rent can’t cover the carrying costs of the mortgage.”
Because mortgages are so expensive, investors need to see a greater drop in interest rates compared to end users, as they’re typically juggling at least two properties.
Investors will likely return in the spring 2025 market but won’t make a comeback this fall, he added.
Preconstruction won’t return for at least another year
The residential resale market must make a comeback before preconstruction can, said Fox — meaning that more sales need to occur in the resale space to decrease the level of inventory for buyers to be interested in preconstruction units.
New condo sales in the first half of 2024 totalled just 3,159 units, a 57 per cent decline from a year ago and 72 per cent below the 10-year average. It was the slowest first half for ne
condo sales since 1997, according to a report from real estate research firm Urbanation.
“It will be another year minimum before preconstruction turns around,” he added.
Pasalis agreed, adding prices for preconstruction have also skyrocketed as construction costs and development fees have soared on top of high interest rates.
“Prices for preconstruction are selling 30 to 40 per cent more than similar resale condos. Investors are only going to opt in if they’re optimistic that condo prices will increase again. Many don’t want to make that gamble at this time.”
This article was first reported by The Star
