If you’ve been waiting for prices to keep falling before you buy, last Thursday’s events signalled the beginning of the end of that wait. 

Here’s what happened, and why it matters. The United States CPI (consumer price index) rose 0.4% in October over the reading recorded a month earlier. And compared to a year ago, it was 7.7% higher. Both of those are unacceptably high increases. However, they were lower than markets were predicting, and in the financial world, what people expect compared to what they actually get is what moves the markets. 

The market reaction was instant and forceful. Interest rates on government bonds immediately tanked. Stock markets immediately exploded. The US dollar immediately declined. The Canadian dollar immediately spiked higher. All this instant reaction happened because the US rate of inflation was a little less hot than the smart money was betting on.  

What’s this got to do with the housing market, you ask? “Everything” is the short answer. 

Inflation is pernicious. It erodes purchasing power by making everyday goods from gas to groceries more expensive. And it’s destructive because it puts upward pressure on the wages and salaries of people trying to keep up with it, which costs employers more, so they have to charge more for their goods and services, causing more pressure on wages. And so on. 

Central banks like the US Federal Reserve (“The Fed”) and the Bank of Canada (BoC) fight inflation by raising interest rates. Business and consumers live on credit, in the form of mortgages, lines of credit, credit cards and loans. And when interest rates rise, credit not only costs you more, but typically, you can’t get as much of it as you used to be able to, especially when it comes to getting a mortgage. 

In an effort to reign-in post-covid inflation, central banks around the world have been aggressively raising interest rates with unprecedented speed. In Canada, we’ve had 6 interest rate hikes since March. They have resulted in the BOC’s “benchmark rate” moving from 0.25% to 3.75%. That benchmark rate forms the floor upon which mortgage rates are based. These rates have never risen by so much, so fast. This pace is intended to make borrowing money prohibitively expensive, which convinces people sit on their wallets. When people don’t spend and borrow, inflation cools because prices come down.  

It's happening in the US. It’s happening in Canada. And that’s exactly what’s happening in the Toronto housing market. 

Impacts to the housing market:

Following the ownership market as a whole, Q3 2022 condo sales were down by approximately 46 per cent compared to Q3 2021. Despite there being substantially more balance in the market in the third quarter relative to a year earlier, the average selling price was up year-over-year, albeit by less than the current pace of inflation.

There were 4,177 condo sales reported through TRREB’s MLS^® System in Q3 2022 compared to 7,795 in Q3 2021. The number of new listings was also down over the same period by 16 per cent to 10,258.

The average selling price for condominium apartments in Q3 2022 was $720,132 – up 4.5 per cent compared to $689,230 reported for Q3 2021. In the City of Toronto, the average selling price was $749,375 – up 3.3 per cent. 

What does the next few months look like for Toronto Real Estate? 

It’s hard to answer that questions with certainty as the December rate hike announcement will give us more insight, however, what we know is condo prices on average have performed stronger than some might have expected as the condo segment remains an integral role in the GTA housing market from both an investor-owned perspective as well as end-user. 

Listings remain low which means if/when we get any indication that we should expect more stability from the BOC there will be several buyers fighting over the same properties which results in an aggressive seller’s market similar to what we saw this winter. Will it be the same as winter 2022? Perhaps not. 

People who are buying now are the ones that are going to thank themselves in the years to come as this is an opportunity to make a purchase without competing offers, including favorable terms such as conditions and not having to act on a property within hours on market. 

A deal in Toronto isn’t always a large discount off the asking price, sometimes it presents itself in different ways. 

If you’ve been waiting for prices to keep falling before you buy, last Thursday’s events signalled the beginning of the end of that wait.