Have We Reached The Bottom?

According to TRREB market stats, home prices in the GTA have remained relatively stable over the past 6 months after a 25-30% reduction from spring to summer 2022. This stabilization appears to be due to several factors:

1) Sellers are starting to come around to the new reality; you can no longer throw your house up on the market and expect to immediately get multiple offers and sell for an amount way over your expected price. It took a period of adjustment, but it now seems that sellers have come to terms with the fact that homes are selling for much less than they did at their peak. Let’s be clear, most sellers (if they have owned their homes for more than a couple of years) will still come out ahead and not take a loss if they choose to sell. The amount of equity they were able to build over the past 2-5+ years would ensure a net gain on the sale of their house.

That being said, sellers are not just giving their homes away. At a certain point, it makes more sense to keep your home and ride out this dip in the market (if financially possible).

2) Rising interest rates have caused a massive shift in market tendencies. With money becoming much more costly to borrow, buyer demand/fervour has dropped significantly. Since the amount of housing supply has been an issue for the GTA (and will continue to be), a drop in the demand for housing has led to more of a balance between the two. In recent years, one of the major factors in the value of home values skyrocketing was the fact that demand outpaced supply so dramatically.

3) This drop in demand has caused a more favourable market for those who are actively looking to buy. In turn, this allowed buyers to negotiate better terms for themselves in the transaction process; the super competitive bidding wars and offer nights began to fade away. For the past 6 months, buyers and sellers have been able to agree to terms that favour the buyer (drastic reduction in home price from the market highs) but also allowed the seller to get rid of their property at a price they can live with.

This is a graph charting the average sales price of homes in Toronto** (all dwellings; condos, townhomes, semis, detached, etc). Spring time highs of about $1.3M on average have since come down and stabilized around $1-$1.1M (**City of Toronto proper)

So, with prices remaining stable, have we reached the very bottom of this drop in home values? In certain areas and neighbourhoods this may be true. But for other less desirable neighbourhoods, there could be more room for prices to trend down. What we do know is that as long as interest rates remain high, people will be hesitant to take on a large amount of debt. With the expectation of another rate increase in the coming days, the market is likely to remain relatively the same.

Will the spring market, typically one of the busiest transaction periods, prove to be any different this year? We shall see…