Toronto’s August market continued to be sluggish. Sales were down 9% from a year ago. Overall prices dropped – lead by the slumping condo market that has more than 6 months of inventory. New listings were lower than a year ago as many homeowners anticipated another reduction in the September interest rate announcement – which transpired last week, as the key lending rate saw its third straight interest rate reduction of 25 basis points.
Prices have softened since the market highs of 2022 but combined with the higher interest rate, affordability continues to be the primary challenge in chipping away at the five months of housing inventory.
As inventory has increased, it has been surprising to some to see that prices have only softened by 11% from peak 2022 pricing. Buyers on the sidelines hoping to see much more dramatic drops will likely be disappointed as lower interest rates typically drive prices higher.
One hope was that with many mortgage renewals when rates were at historic lows would cause some homeowners to sell causing more inventory leading to lower prices. The following analysis will provide a clearer picture of how affordability has changed since the pandemic.
We will apply discounted 5-year fixed mortgage rates with 25-year amortization to the average Toronto property price to the following periods:
- 3-month period (Dec 2020-Feb 2021) when interest rates were at their lowest in the midst of the Covid 19 pandemic
- 3-month period (Mar 2022-May 2022) when prices peaked while interest rates started to increase from pandemic lows
- Most recent 3-month period (Jun 2024-Aug 2024) as prices soften while interest rates began to ease
Note: Downpayment of $246,372 is 20% of Mar 2022-May 2022 and applied to all 3 scenarios in order to isolate the differences in monthly payments.
Observations:
i) There was a meteoric price increase of 34% ($918K to $1.23M) between the 2022 highs and pandemic prices
ii) Current average prices are 19% higher than pandemic prices but 11% less than 2022 highs.
iii) Current 5-year discounted mortgage rates in the mid 4% have come down ~100 bps from 2023, but still significantly higher than historical pandemic lows
iv) Current monthly payment is $2,044 more (76%) than pandemic monthly payments at historical pandemic lows yet similar when the market was at its 2022 high.
With an estimated 50% of mortgage renewals coming due in 2025-2026, there has been concern about a mortgage cliff which could cause prices to drop if those renewing off of record low interest rates cannot make their payments at prevailing higher interest rates.
The scenarios above show the extremes when rates were at historic lows and prices were at all-time highs. With rates expected to fall in the coming year, it will be unpleasant for a small group of home owners who enjoyed historically low mortgage rates at relatively lower prices. For the broader market that paid higher prices with interest rates in the 2-3% price range, the effect of higher rates in the 3-4% range will be more manageable.
Shen Shoots the Breeze
I love to travel; my husband – not so much. He’s a creature of habit while I’m always up for an adventure. We just made plans to go to Greece – it’s the first time for the both of us. It won’t be high season and probably too cool to swim in the beaches but we won’t be fighting the crowds for tourist attractions, restaurants and accommodations.
I used ChatGPT and asked for an itinerary for first timers to Greece; going in the off season for 12 days and have an interest in food and amazing views. This AI thing was helpful. It gave us a day-to-day itinerary of where to visit and where to eat. We asked a friend who has been to Greece many times to review the proposed itinerary and he said it was a pretty good start.
Our plan is to also book some AirBnBs– we don’t want to eat out 3 meals a day. We are Carry-On Luggage Only travellers; so being able to do laundry a couple of times on our trip will save us from having to pack enough clothes for a 12-day journey. I’m aiming to pack enough for a 4-5 day trip.
Here are some items that I pack on my travel tote:
– Peppermint Halo from Sage is great for headaches, extreme heat, nausea or a smelly plane toilet. Apply it under your nose, on your temples and behind your neck. Just avoid the eye area.
– My Ipad with a couple of books loaded on it and my knitting. I’ve never been asked to remove my knitting needles but I don’t pack my knitting scissors.
– Light jacket (which I can roll up as a pillow), large light-weight shawl/scarf and extra socks (in case I’m travelling with sandals and my feet get cold).
– Toner spray, lip balm, face cream and hand lotion. It gets dry on the plane.
– Hair ties, sunglasses, chargers/adaptors and air pods. I also bring corded earphones for in plane entertainment.
– Empty water container and snacks. If it’s a long ride, sometimes I may purchase my meal at a local bakery. It’s way more delicious than plane food.
– Anti-bacterial wipes to wipe down arm rests, screen and tray table + hand sanitizer.
– For long flights, we will bring a portable foot rest. It helps elevate the feet and reduces pressure on the lower back
– Gum, toothbrush and toothpaste and deodorant. Enough said.
We have some questions for our gentle readers. Any tips on a good travel credit card. We currently have a TD Aeroplan but are looking to get another travel credit card. Also any tips for Greece? We will be going to Athens, Crete and Santorini.