By Ketki Saxena
Investing.com - Today’s headlines highlighted a near-halving in Toronto’s housing sales, a clear indicator of the cooling Canadian residential real estate sector at the Bank of Canada’s rate-hike spree weighing on borrowing costs and mortgage intentions.
July sales fell 47% from the same time last year and 24% from this past June, the Toronto Regional Real Estate Board announced today, as the market easies from a fevered pace of activity and price increase seen during the pandemic, and at least partially as a result of high-liquidity pandemic-era monetary policy.
As the Canadian central bank has turned increasingly hawkish in its path to combat inflation - including a full percentage pint hike at its last meeting in July, Canadians are rethinking their housing intentions. Prospective buyers are holding out for further drops they and brokers anticipate could materialize in the fall, while sellers are debating making what they can from their home now or waiting for the market to turn in their favor again.
While activity in the market is cooling as rate hikes and rising mortgage rates have prospective homebuyers rethinking their immediate housing intentions, housing in the Greater Toronto Area is hardly becoming more affordable.
TRREB found the average home price was $1,074,754 last month, a six per cent drop from $1,145,994 June this year, but still 1% higher at $1,061,724 than a year ago in July 2021. The composite benchmark price for a home in the area was more than $1.1 million, up by 12.9% year over year.
The cost to rent is also rising. Recent TREB data showed that the average rent for a one-bedroom apartment, the most common type of rental abode, increased by 20% year over year in Q2, while rents for two- and three-bedroom apartments increased by 15.3 and 12.8%, respectively. Townhouse rents increased between 11% (2 br) and 25% (3br) in the same period.
While it may seem paradoxical, the Financial Post summarizes the phenomenon as follows:“A decline in housing prices is often accompanied by a more pronounced drop in housing sales. This is because households who would have transitioned from rental to owned housing postpone the decision temporarily, resulting in their longer than expected stay as renters. Thus, the pressure on rental markets increases because new renters must compete for the limited number of available rental units."