Toronto Real Estate Spirals As Inventory Surges, Demand Hits Historic Low

Toronto Real Estate Spirals As Inventory Surges, Demand Hits Historic Low

Spring was supposed to be when Toronto real estate made its comeback, but boy was that call off. TRREB data shows home prices slipped further in May, marking the third consecutive year that lower seasonal peaks were observed. However, price drops were the least notable data point last month, with the most inventory for the month in over a decade. At the same time, buyers were unusually scarce, leading relative demand to print the worst May on record.

Greater Toronto Real Estate Prices Slip For A Third Year

Greater Toronto real estate prices reversed course, making a sharp decline last month. The composite benchmark, or typical, home price fell 0.9% (-$10.7k) to $1,117,400 in May. Home prices are now down 3.5% (-$40.3k) compared to a year before. The move caps off the seasonal peak, and left some interesting data points for observers. 

One of the most important takeaways from the above chart is last month’s data indicates April was the seasonal peak for the composite benchmark. For three consecutive years, the seasonal peak has turned lower and lower. Analysts generally believe this trend for asset prices indicates that buyers are having increasing doubts about the value of home prices.

Since peaking in March 2022, the price of a typical home has declined 15.5% (-$204,600). That’s enough to be considered a correction, but not technically a crash.  

Putting a cap on growth isn’t encouraging when it comes to the annual growth rate. Back in March, this trend came up for air and emerged in positive territory. Over the past three months, it’s plunged once again into negative territory. 

Toronto Home Sales See Fewest Buyers Since 2000, Weakest Outside Pandemic

More noteworthy than the price movement was the lack of buying activity. TRREB reported just 7,013 sales in May, a decline of 21.7% compared to the same month last year. With the exception of the depths of the pandemic in 2020, one needs to go all the way back to 2000 to find a slower May. Bluntly put, the only slower May in nearly a generation required the shutdown of the economy.  

Toronto Real Estate Demand Just Had The Weakest May On Record

A generational low for buyers might have panicked a few sellers, who showed up in full force. New listings climbed 21.1% from last year to 18,612 in May. That pushed the sales to new listings ratio (SNLR) to just 37% in May, marking the worst demand balance for May going back to… well, ever. The board’s data only goes back to 1996, and demand has never been so weak relative to inventory in that period. 

The SNLR is considered a fundamental indicator for the industry, helping to determine market balance. At just 37%, this is what’s referred to as a buyers’ market, where they expect home prices to fall. 

The region has also seen homes take significantly longer to sell, leading to a glut of inventory. Active listings, those remaining at the end of the month, surged 83.3% from last year to 21,760 homes for sale in May. Surprisingly, active listings haven’t been this high in May since 2013, back when current Bank of Canada (BoC) Governor Tiff Macklem was Deputy and believed Canada’s GDP was too dependent on real estate.   

Experts attribute the slow market to interest rates and expect activity to pick up as rates are cut, and stimulate buying. At the same time, it’s also relevant that falling rates are typically present during price corrections as well, like in the 1990s. Further to that point, soft demand might be attributed to elevated interest rates, but that doesn’t explain why rental vacancies in the region are climbing significantly above pre-2020 levels.