The Bank of Canada recently announced the second interest rate reduction in a row! In my opinion, it’s a step in the right direction, and not to be a naysayer, but I don’t believe it will have much of an impact. For homeowners with variable mortgages, the difference is negligible, and the change doesn’t really affect those with fixed mortgages.
The main problem for the condo market is that Toronto’s rental market is not as strong as it was. So, when rent won’t cover the carrying costs, it’s not an attractive purchase for most investors. Considering the majority of available properties are smaller studio or one bedroom apartments, without investors, sales will continue to be low.
I was optimistic and hoping for a .5% reduction. But even if that had happened, we’re in the dead of summer and inventory remains high. How high is it, you may ask? Realtor.ca currently lists over 7,000 condo units available in Toronto and over 2,700 houses. For example, in areas like the MLS district of C01 (Yonge to Dufferin, Bloor to the lake) and C08 (Yonge to the DVP, Bloor to the lake, there were 2595 condos listed for sale and 352 sales in July alone. That means that only 13.5% of the condo listed for sale were selling.
Interestingly, prices aren’t dropping. Year-over-year, condo prices were down by .9% in July, which is less than $8,000. Those who bought in 2020 and 2021 obviously don’t want to lose money on their property if they were to sell now. In some areas prices have dropped significantly since then; thankfully not in most areas though. According to this Toronto Star article, prices are down by an average of $60,000.
My opinion? I don’t think the market will rebound until people get used to the fact that interest rates will never be as low as they were during the pandemic.
When we hit the sweet spot of interest rates being at 4% or lower and when buyers accept the reality this may just be as good as it gets for a while, we’ll see some action in the market and eventually, we’ll start to see prices go up again
I know some realtors are trying to scare people into thinking that if they don’t buy now, they’re going to lose out. But with the amount of inventory on the market, many sellers don’t have a lot of leverage. The harsh reality is that buyers are in the driver’s seat; unless of course you are selling a very unique, exceptionally appointed home in a highly desirable neighbourhood. Those homes will always fly off the shelves regardless of the market.
The other factor here is that even though inflation is being kept in check, people are being conscious about their spending habits. In addition to increased mortgage payments, we’re all looking at higher prices for groceries, gas, and utilities.
My advice for potential sellers is to be realistic in terms of what’s happening in the market. Some sellers are of a mindset to list their property to see what happens, which is something I recommend against. An up-market where there are motivated buyers is the market in which to test the waters, not this one.
By “just trying” to see what happens, sellers who don’t need to sell are flooding the market with listings. This will make it more likely that people who have to sell will reduce their price. If your neighbour is forced to sell their home at a lower price, that’s the comparable you’ll be facing when you list your home again.
Keep in mind, in markets like we’re in, there are always opportunities for qualified buyers. Some sellers really need to sell, so there can be room for negotiation. If interest rates scare you, one thing to consider is starting with a variable rate mortgage with the knowledge (or at least hope) that rates will continue to go down, then in many cases (check with your mortgage broker) you may be able to lock into a fixed rate when you feel that rates are as low as they’re going to go.
You know I love to talk real estate, so if you have any questions, please get in touch!