We are now in June, almost half way through 2024.
The first half of the year has been rough for the real estate market.
In fact, the latest market watch report for May indicates that things are getting worse.
We are going to dive into the data and see how bad things are.
The biggest news this week is of course, the Bank of Canada’s rate cut.
Did it come just in time to turn the market around?
Can we expect a different picture for the second half of the year?
Let’s talk about all that today.
Last year in May, we were at the peak of the recovery just before the rate hikes started again in June.
How do we compare May this year with last year?
Number of sales went down by 21.7%.
New listings went up by 21.1%.
So we got 21% more sellers, but 21% fewer buyers.
In terms of the average price, it is still very resilient, only 2.5% down from last year.
That’s how much the market has deteriorated within 12 months because of the 2 extra rate hikes in June and July 2023.
This year, we are going in the opposite direction in terms of the interest rates.
We just got a rate cut a few days ago bringing down the policy rate from 5% to 4.75%.
The Bank of Canada has also signalled further rate cuts, so it is very possible that we will see rate cuts coming July and September.
Is the real estate market going to turn around because of the rate cut?
Definitely.
Mathematically, 0.25% doesn’t make a life changing difference in the mortgage calculations.
Psychologically, this first rate cut carries an important significance.
Buyers always want to catch the bottom of the market.
They have been hesitant because they are worried that prices would go down further.
The Bank of Canada’s first step to a rate cut will be translated to “This is the bottom of the market.”
So we are going to see people moving from the sidelines back into the market.
Afterall, buying is an emotional decision, it is never 100% logical.
That’s why whenever the government announces a policy change, it could have a drastic effect on the market even though the policy itself only affects a small number of people.
For example, when the Non-Resident Speculation Tax was first introduced, it crashed the market big time.
But in reality, foreign buyers only represent 2 to 3% of the homeowners in Toronto.
So it was mostly a huge psychological impact.
Back to the rate cut…
We are going to see more energy and movements in the market.
But the question is how fast is the recovery going to be?
And we won’t be seeing the same recovery speed in all market segments, some home types and some areas are going to recover faster than others.
Overall, I don’t think we are going to see a fast V-shape recovery.
It is going to be a slow and steady recovery because there are a lot of available inventories for the market to digest.
My prediction is that it is going to take another 9 months for the market to return to the peak we saw in 2023, so around spring 2025.
The recovery will be driven by end-users because investors won’t be in the mood to invest yet.
Let’s go back to the latest market report.
If we look at the data in May compared to April, there’s a hint on which housing type and which area is going to lead the recovery.
We’ll start with the 905 area, the suburbs.
The number of sales for detached homes went down around 1.5%
Semi-detached, down 10%.
Townhouse, down 8%.
Condo, down 8%.
Activities went down for all housing types.
In terms of the average price, detached homes went down 2%.
Semi-detached, down 2%.
Townhouse, down 1.5%.
Condos, up 0.3%.
Prices were more or less flat, with some downward pressure.
Let’s take a look at the 416 area, City of Toronto.
The number of sales for detached homes went up 13% in May.
Semi-detached, up 14%.
Townhouse, down 2%.
Condos, down 1%.
The average price for a detached house is above $1.82 million dollars, up 0.23% from April.
Semi-detached, up almost 4%.
Townhouse, up 3%.
Condos, pretty much flat.
Do you spot something very interesting here?
All housing types are trending down in the 905 area.
But low rise homes are actually trending up in the 416 area.
Both detached and semi-detached home sales were up 14% in May compared to April.
After all that pandemic trend of moving away from the city, the city core still stands the test of time.
End users looking for low rise homes in the 416 area will be driving the market recovery.
Condos will have to wait because there are a lot of inventories available on the market.
Eventually when the low rise market has recovered to a certain level, the high rise market will follow.
Over the years, we’ve seen ups and downs in the low rise and high rise markets and they may occur at different times.
Sometimes, the high rise market is up when the low rise market is down or vice versa.
But the two markets are always related, what happens in one affects the other, they never operate independently.
Next week, I’m going to share some exclusive insider news on what developers are planning to do with investors hibernating and when they expect the pre-construction market to recover.
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