Toronto’s September Real Estate Market Overview: Sales, Inventory, and Rents
The Toronto real estate market continues to send mixed signals, with sales and inventory levels shifting in different directions. Sales TrendsIn August, seasonally adjusted home sales in Toronto rose slightly by 0.6% month-over-month (m/m) according to Edge Realty’s September Metro Deep Dive. This was accompanied by a revised upward figure for July. However, year-over-year (y/y) sales were down 6% overall, with the condo segment in the city seeing a sharper decline of 15% y/y. Both the condo and single-family segments had the lowest sales numbers for any August in the past 25 years.Source: Edge Realty AnalyticsNew Listings and Inventory LevelsAlthough there were some expectations for a rise in new listings, seasonally adjusted listings were down 1.6% in August. This continues a trend of lower-than-usual listings over the past 18 months. Active inventory across the Greater Toronto Area (GTA) remains elevated, increasing by 46% y/y and reaching its highest levels since 2008, per the Edge Realty report. Condo inventory, in particular, remains at record highs, adding pressure on market conditions.The sales-to-new listings ratio remains below 40%, a level historically associated with price declines. Additionally, the months of inventory for condos are at record highs, while single-family homes are at their highest since 2008. Source: Edge Realty AnalyticsSource: Edge Realty AnalyticsMarket Balance and Price TrendsDespite sales-to-new listings and months of industry numbers, prices have remained stable. The MLS Home Price Index (HPI) remained flat in August, as prices remained effectively unchanged for the past four months. This contrasts with expectations of price declines based on high inventory levels, creating a potential area of future concern. However, Ben Rabidoux, Edge Realty, predicts that without a market tightening before winter, prices could start to decline.Rental Market and Investor Cash FlowIn August 2023, Toronto’s rental market continued its trend of increasing rental prices. The average rent for a one-bedroom unit climbed by 1.4% from the previous month, reaching $2,620, while two-bedroom units saw a 2.4% increase, with average rents hitting $3,413. This positions Toronto as the second most expensive city in Canada for renters, just behind Vancouver. However, the condo rental market remains under pressure, as the Edge Realy report noted rents dropping 7% y/y in August. This decline is partly attributed to high levels of condo completions. However, cash flow fundamentals for investors have improved somewhat. Falling prices and declining mortgage rates have reduced the monthly cash flow burn rate by more than half compared to late 2023, although it is still negative at this point. Rabidoux anticipates that investors may return by early next year, but only if mortgage rates continue to decline. Source: Edge Realty AnalyticsConstruction ActivityRental construction surged in July, resulting in a 1.1% increase in total dwellings under construction in the GTA, largely driven by a 5.5% rise in rental construction. There are 103,000 total dwellings in the construction pipeline, with 73,000 condos and 19,000 rental units under development. However, single-family housing starts remain low, with only 11,000 units in construction. July’s condo sales were notably weak, down 67% y/y, and this will likely lead to fewer condo starts in the coming year, potentially exacerbating future supply shortages, according to the Edge Realty report.Source: Edge Realty AnalyticsEmployment and Market OutlookThe economic backdrop has also been challenging. The unemployment rate in the GTA increased to 8.8% in August, the highest level outside of the pandemic since 2012, and higher than Canada’s unemployment rate overall of 6.6%Looking ahead, the Toronto Regional Real Estate Board (TRREB) expects that lower borrowing costs over the next year and a half will help home buyers by reducing both mortgage payments and home prices. Despite anticipated demand increases in 2025, ample inventory is expected to keep price growth moderate during the initial recovery.
Ethical Dilemmas: The federal investigation into CREA's commission rule & Cooperation Policy
No surprise to most of us, the Competition Bureau (CB) is investigating the Canadian Real Estate Association (CREA)’s MLS commission policy requiring a commission be paid to buyers’ agents, and the Cooperation Policy requiring all listings to be on the MLS within three days. I expected both, and I’ll be surprised if the Cooperation Policy comes out unscathed as I find it unethical no matter how many times I re-evaluate it, but I take real issue with the investigation into the mandatory buyers’ agent commission policy. Now, this is clearly a complex issue involving both law and ethics and, as we realtors get used to saying, I am not a lawyer, but I would like to comment on both the legality and the ethics of the situation. Our MLS at a high level Before I comment, I need to back up a few steps and discuss our MLS from a high-level standpoint. MLS in North America is, to use the parlance of our times (Big Lebowski fans will recognize that line), a unicorn. In many, if not most, countries, listing agents do not cooperate with buyers’ agents, and even in North America we see that commonly with commercial transactions. In other countries, buyers are forced to peruse multiple websites, drive around, talk to multiple agents — none of whom work in their best interests — and then ultimately work with one of these agents whose primary job is to get the most money from them as possible. Whether or not it’s the best home for them is secondary. These agents are’t bad people; this is just their duty, same as listing agents here. Of benefit to buyers, sellers and both agents Our MLS strikes me as one of the best creations the world has ever seen, and I’m not exaggerating. For most of us, our home is an extension of who we are and one of the most important purchases of our lives. American psychologist Abraham Maslow recognized this almost 100 years ago when he placed shelter at the very base of his hierarchy of human needs. A comfortable, happy home is probably one of the most important factors of a fulfilling life. The MLS gives homebuyers easy access to the widest selection of potential homes while simultaneously allowing them to have a trusted representative on their side in what may very well be the most expensive purchase of their lives. I dare say only a few things in this world are more important than that to the average person, though we rarely take the time to think that through. At the centre of this transaction is the trusted representative, the buyers’ agent, the realtor. In my career, I’ve had the opportunity to work across the table from some very competent realtors. Watching these professionals at work has been a great pleasure and learning experience over the years. Many homebuyers have been able to purchase the best home available to them at the time with the least amount of effort and under the best terms and conditions available, thanks to the guidance of these professionals. MLS is truly a win-win-win-win — homebuyers, sellers and both agents benefit. A conflict of legality and ethics, of cooperation and competition Considering all these factors, the question arises: how should we reward these practitioners fairly and adequately? This is where the divergence between what is legal and what is ethical comes into conflict. Is it ethical to have these people work for us with no guarantee of any pay, even up to the time of possession? No, but it is legal. Is it ethical to allow buyers to use this system without having to make any commitment to paying anyone anything at any time? No, but it is legal. Before expanding on my answers, I need to cover a couple more things. As I mentioned, the MLS is a unicorn in that realtors cooperate and compete at the same time, and our legal system seems to have a difficult time wrapping its collective head around such a system, especially since the legal system is primarily an adversarial system and the notion of cooperation is foreign (I do find it particularly ironic and satisfying that both parties in a legal dispute start out adversarial but once nobody wins and they run out of money for legal fees, they quickly become cooperative.) The real question: Is it unreasonable to ask that consumers using the system must pay for it? The critical distinction is that whether we’re cooperating or competing, it is always in the client’s best interest. We cooperate to get the seller’s home sold and to get the buyer a home purchased; we compete to attract and keep business, and that means competing on fees. I can’t recall ever, not once, in 30-plus years having another realtor try to conspire with me for a mutually higher fee, but I sure have lost a lot of business to lower fees or better service. Now, given the benefits I’ve just listed, here’s the real question, in my opinion: is it unreasonable to ask that consumers using this system must pay something? That something could be a dollar but it must be something and both parties are free to negotiate that fee. Is that unreasonable? Is that anti-competitive? Negative price competition and steering: Not remotely possible And this brings me to the current situation. The CB is investigating whether the commission policy negatively influences price competition and whether it enables steering. I cannot see how either of these is remotely possible given that the policy simply states that a fee must be offered — this could be any fee, even 10 cents. Our Buyer Agency agreements in Alberta, and I suspect across the country, address specifically what happens when a listing offers more or less commission than we have agreed to with our buyer. If a buyer has chosen not to sign an agency agreement with us for their own interests, then we owe them the same commitment they owe us: little or none. This is both legal and ethical. We’ve offered them a mutually satisfactory arrangement and they refused. Additionally, it takes away a seller’s right to make their property more attractive to the marketplace, something I argue the CB and no human entity has the moral or legal authority to do. A comical yet sobering proposition: Value of services rendered diminishes greatly once services are rendered I remember being at a conference some years ago where an economist was speaking and he mentioned the system in which realtors only get paid after a transaction is completed. Economists had come up with a casual, humorous principle by which they described this system. Decorum does not permit me to provide all the details, so let me just say that they compared our system of payment to the system of payment for one of the world’s oldest professions, as follows: the value of services rendered diminishes greatly after services have been rendered. It was comical for a moment but has been rather sobering since then, and it applies directly to today’s situation. When we really need a service we will negotiate a higher fee; once we’ve received what we wanted, we want to renegotiate. That may be legal but it’s not ethical. If you use a product or service, you must expect to pay for it. I don’t know the answer but I’m becoming more confident in my conviction that the CB needs to take a step back and re-evaluate the ethics of what they are doing. Competition is only one factor of many in the world of economics and business — nothing exists in a vacuum.
Double-digit condo inventory surges across Canada as sellers return to the market: Re/Max
A new report from Re/Max Canada reveals that condominium inventory has surged across major Canadian cities, as sellers have returned to the market anticipating increased buyer demand in late 2024 and early 2025. The report, which examined condominium activity in seven key markets from January to August 2024, notes significant growth in condominium listings. Leading the way are Fraser Valley (up 58.7 per cent), Greater Toronto (52.8 per cent), Calgary (52.4 per cent) and Ottawa (44.5 per cent), with more modest gains seen in Edmonton (17.7 per cent), Halifax (8.1 per cent) and Vancouver (7.3 per cent). Despite the influx of new listings, condominium values have held steady in most markets. Calgary saw a 15 per cent increase in average condominium prices, followed by Edmonton at 4.0 per cent, Ottawa at 2.3 per cent and smaller gains in Vancouver, Fraser Valley and Halifax. Greater Toronto was the only market where prices dipped, down 2.0 per cent year-over-year. Sales activity in the condominium sector varied, with Edmonton leading with about a 37 per cent year-over-year increase in sales, marking its best performance in five years. Calgary saw a more modest rise in sales (2.6 per cent). Meanwhile, other markets experienced slower condominium sales as potential buyers continued to wait for more favourable interest rates. Future outlook: Current lull is ‘the calm before the storm’ “High interest rates and stringent lending policies pummelled first-time buyers in recent years, preventing many from reaching their homeownership goal, despite having to pay record-high rental costs that mirrored mortgage payments,” says Re/Max Canada president, Christopher Alexander. “The current lull is the calm before the storm,” he adds. Alexander says as of spring next year, pent-up demand should fuel stronger market activity, especially at entry-level price points, as both first-time buyers and investors vie for affordable condominiums once again. Market dynamics and regional trends Re/Max found that Edmonton and Calgary remain in a seller’s market, while cities like Vancouver, Ottawa and Halifax have more balanced conditions and are likely to change next year. Toronto, while still experiencing sluggish activity, is expected to turn around quickly once market conditions improve, as prices are believed to have bottomed out. Even as new listings rise, buyers remain cautious. Early interest rate cuts by the Bank of Canada have not yet spurred significant buyer activity, but with more cuts anticipated, market activity is expected to pick up, particularly among end users seeking affordable condominium options. “Even in softer markets, hot pockets tend to emerge,” says Alexander. “In the condominium segment we’re seeing a diverse mix among the most in-demand areas, ranging from traditional blue-chip communities to gentrifying up-and-comers, as well as suburban hot spots.” He explains that condominiums in top recreational areas were among the markets posting stronger sales activity. In Toronto, midtown neighbourhoods such as Yonge-Eglinton and Forest Hill South saw double-digit sales growth in the first eight months of 2024, as did communities in the city’s west end, including High Park and Roncesvalles. In Vancouver, suburban areas like Port Coquitlam saw a notable 11 per cent increase in apartment sales. Investors take a step back except in key markets While end users dominate the current condominium market, Re/Max observed a pullback among investors, particularly in Greater Toronto, where up to 30 per cent of investors have experienced negative cash flow due to rising mortgage carrying costs. Investor confidence is expected to recover as interest rates drop and rental incomes rise, making investment more favourable once again. In contrast, Edmonton has bucked the trend, attracting investors seeking affordability. With condominium supply outpacing demand, savvy investors have been revitalizing older condominium stock to rent out at premium rates. Out-of-province investors, particularly from Ontario and British Columbia, are capitalizing on Edmonton’s lower costs and development-friendly environment. Unique opportunity for buyers: ‘Arguably the most favourable climate condo buyers have seen in recent years’ “In many markets, end users are in the driver’s seat right now,” explains Alexander. “While investors are an important part of the purchaser pool, this point in time is a unique opportunity for aspiring condominium buyers who, for a short window of time, will likely see less competition from investors and a better supply of product.” He notes this is especially true in Toronto and Vancouver, where the impact of monetary policy has hit investor profit margins to a greater extent despite high rent and low vacancy rates. “With values set to rise, this is arguably the most favourable climate condominium buyers have seen in recent years.” ‘Inevitable that further development will see condos become driving force accounting for lion’s share of (future) sales’ As immigration and in-migration between provinces continue to boost demand, condominiums are becoming both an entry point and a “middle step” in Canada’s most expensive markets. While population growth may slow in the short term, Statistics Canada projects that Canada’s population could reach as high as 49 million by 2035, ensuring long-term demand for condominiums. “The housing mix is evolving very quickly as a result of densification and urbanization. Condominiums now represent the heart of our largest cities, and it’s inevitable that further development will see condominiums become the driving force accounting for the lion’s share of sales in years to come,” says Alexander. “It’s a physical and cultural shift that Canadians are not only adjusting to but are embracing, as younger generations redefine urban neighbourhoods, sparking demand for vibrant and robust amenities, infusing new life in Canada’s urban cores in the process.” Review the full report, including regional highlights.
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