The Bibby Group | November 2023 Newsletter

Toronto has always been an epicentre of Canadian real estate, but we have experienced yet another soft month. Indeed, the current landscape has proved daunting as trends continue to indicate a slowdown in sales and an increase in inventory. As the Bank of Canada held its benchmark interest rate earlier this month at 5%–a 22-year high—the potential for interest rates to remain elevated may pile more pressure on sellers, with steep borrowing costs continuing to price out many buyers and keep others on the sidelines waiting for equilibrium.

Freehold inventory in the Central Toronto marketplace is currently up by approximately 45% year over year, with condominiums approaching 60%. It feels as though pricing data is lagging, and the only relevant data point (in my opinion) from the Toronto Real Estate Board’s November Market Watch is the increasing inventory. Otherwise, the report does not reveal much. And while the report notes that prices are holding in some markets, active sellers and agents agree the dynamic feels noticeably different, as many listings are sitting and not clearing.

While consumer confidence remains low, buyers who need a home and aren’t tied to timing the market are transacting freely, while many patiently wait. I am not convinced that price reductions today will necessarily lead to sales, given that total transactions are down by approximately 39% from the springtime in the central marketplace.

That said, some sellers will become more motivated as we approach year-end and inventory builds—a dynamic that will most likely lead to further flexibility and price cuts by those committed to the selling process and not testing the marketplace.

As the Bank of Canada senior deputy governor indicated last week, households should prepare for an era of borrowing costs higher than in the last 15 years. This long period of historically low rates triggered a real estate frenzy that is now in crisis, as many are exposed to the fallout of rate increases and higher mortgage payments. The interest rates of recent years were not only unusual but, in some cases, unhealthy. Consequently, re-establishing a more typical range will return balance in household finances and our ever-evolving real estate market.

Many industry experts believe home sales will be subdued in the months ahead as interest rates hold. And while I hate to be the bearer of bad news, prices will have to soften to make the transaction process affordable—a process that will likely continue into 2024. While an optimistic outlook would see interest rates declining in the springtime, we need to be watchful of even more supply surfacing in the new year, as any optimism in the marketplace may trigger an entry point for sellers feeling uninspired.

In this climate, all of our sellers are advised to remain nimble and ensure their strategies are aligned with the reemerging market trends. Buyers stand in an advantageous position now and have the upper hand due to a broad spectrum of inventory and increasing negotiation leverage. Although it feels as though both sides disagree on where market value lies, if all parties involved can work together to understand the trends and take strategic action, this will hopefully lead to success in the coming months.