Rents up, prices down – making sense of the GTA market’s latest movements

The topic on the mind of everyone looking to buy in the new housing market over the past six weeks is the recent interest rate hikes.

House price inflation has been a big problem for prospective first-time buyers, but new analysis from HouseSigma Inc. and Bullpen Research & Consulting shows that prices are starting to trend down, and trending down fast, following bubble-like conditions in January and February of this year.

Ashkam Rahimi, the Director of Sales at HouseSigma, described the market in January and February of 2022 as “Insane, with 10 to 15 competing offers on every listing, despite the fact that many prospective buyers had given up in late 2021 due to the frustration of being outbid.” However, Rahimi mentioned that “the slowdown that started in March has brought some of those frustrated buyers back to the table this year, as most listings are getting three or fewer offers, but buyers remain cautious.”

Spike in terminations

According to the HouseSigma data from May 2022 (first 25 days only), the median price for single-detached resale homes was down 5.8 per cent month-over-month, and 15.7 per cent since February to $1.4 million. Condominium units are faring slightly better than the other property types, with a monthly decline of 2.9 per cent and a 6.2-per-cent decline since February to $690,000.

Another interesting data point from the HouseSigma report is the spike in terminations. If a resale property is not selling or receiving acceptable offers, a listing may get terminated, or essentially pulled from the market and relisted at a later date. An increase in terminations is an indication of a softening market.

During the peak of the market in the early part of 2022, GTA resale housing terminations were at 2,329 in January and 2,575 in February. During May, there were more than 11,200 terminations, an increase of more than 385 per cent from January 2022.

Impact on median pricing

Getting back to pricing, the composition of the units traded can have an impact on the median pricing, with larger units driving up the price and lower priced units pulling them down. The HouseSigma and Bullpen data showed both Mississauga and Toronto have seen their average resale per-sq.-ft. prices slowly decline between March 2022 to May 2022 for one-, two- and three-bedroom condo apartments.

One bedroom condos in Mississauga had an average price of $875 per sq. ft. in May 2022, while two-bedroom units had an average price of $700 per sq. ft., and three-bedrooms had an average price of $704 per sq. ft. In February, those rates were $980, $787 and $806 per sq. ft., meaning pricing has fallen 11 to 13 per cent.

One-bedroom condo apartments in Toronto had an average price of $1,043 per sq. ft. in May 2022, while two-bedrooms had an average price of $900 per sq. ft., and three-bedrooms an average price of $872 per sq. ft. Per-sq.-ft. prices are down five to eight per cent from the February peak levels, demonstrating that the Toronto market is faring better than Mississauga.

Investors are paying close attention to the resale condo price movements, but hold and rent investors are continually charging higher lease rates as the downtown core fills back up. According to data from torontorentals.com, condo apartments had an average monthly rental rate of $2,509 in April of this year, a 21-per-cent increase over the April 2021 average of $2,067 per month. This also represented a month-over-month increase of 3.6 per cent. The average rent of $2,509 per month is higher than the pre-pandemic rate of $2,473 per month in February 2020.

Pace of price growth

It’s certainly not easy to wrap your head around what is occurring in the market, but clearly, interest rate increases are a factor in pushing down resale housing transactions and demand, and thus pricing. Some prospective buyers are staying in the rental market and not purchasing a property, leading to lower supply availability in the rental market, driving up rental rates.

I don’t know what the dominant factor will be, but I do expect new condo launches to finally slow, and the pace of price growth to fall. However, given construction costs and government fees, there isn’t much room for developers of future projects to drop their price.

I hope that clears things up! Good luck out there.