The Bibby Group | Year-End Market Review

As each year draws to a close, I always enjoy taking some time to put my experiences from the previous twelve months and forecasts into something meaningful our clients can use as a roadmap for the year ahead. Here’s an overview of 2024 and an outlook for 2025.

While our early spring market showed signs of recovery with lower supply levels and generally more upbeat market activity, early summer saw a switch: supply levels soared, and all forward momentum halted. In June, the BoC began a cycle of interest rate cuts that brought the Toronto real estate marketplace into a period of balancing high supply and declining mortgage rates throughout the fall.

In recent weeks, it feels like the market is poised for improvements, as supply levels had trended downwards over the month and the number of transactions trends upwards for freehold properties and condominiums. While the supply levels at the moment are not low enough to trigger price growth or competitiveness, I must admit that I am encouraged by recent activity as the cumulative impact of successive interest rate cuts has started to take effect, improving consumer confidence at year-end. Hopefully, this is an indication of what’s to come in 2025.

Interest Rates
As we move into the new year, we are gaining more clarity on the BoC’s stance towards interest rates. At this time last year, we waited patiently for interest rates to start falling. Most recently, a fifth consecutive rate cut (a second oversized move of half a percentage point in a row) to 3.25% indicated that policymakers are ready to bring borrowing costs back to a less restrictive level to avoid a recession. After the most recent announcement, Governor Tiff Macklem said in a press conference that he expects the bank “will be considering further reductions in the policy rate” but suggested the recent pace is unlikely to continue. While fixed mortgages will remain unchanged, the overnight rate directly impacts people with variable-rate mortgages, which will improve consumer confidence as we move into the new year, hopefully making growth in the marketplace less restrictive.

Supply
Increasing supply has taken much of the momentum out of our recovery this year across all sectors. However, as the market conditions hopefully begin to improve in the months ahead, we should see buyers absorb the large number of standing listings built up over the last year. One interesting observation this year was that every time we saw an increase in transactions or modest price growth, new homes and condominium units flooded the market—an indicator of potential sellers eyeing an exit when the circumstances are ideal. Although I am cautiously optimistic for the year ahead, we must monitor the number of investors and property owners looking to leave the marketplace as conditions improve and we balance supply and demand.

Condominium Data
While market conditions still favour buyers at the moment, the number of transactions month over month continues to trend upwards, with the central Toronto condominium market seeing some improvements towards year-end. A strong spring market fueled recovery and price growth after a lacklustre 2023, which unfortunately quickly levelled off by the summertime due to an influx of supply. Improving conditions always trigger new inventory, of which levels have increased by 19% year over year; however, we have slowly seen supply levels trend downwards by the month this fall and winter. Year-over-year values have remained relatively stable, only declining by 2%. That said, the number of transactions during the same timeline has increased by 40%, which is an indication that consumer confidence is improving.

Freehold Data
The central Toronto freehold market has shown signs of improvement in recent months. While overall supply levels are more restricted than the condominium market (we are not building new subdivisions downtown), detached home values have increased year over year by 4.6%, while the number of transactions has improved by 35% during the same period. This is encouraging despite supply being up by 29%. The semi-detached market, meanwhile, has seen prices remain unchanged, yet transactions have increased by 29% despite supply rising 14% year over year. Many homebuyers have benefitted from more affordable market conditions triggered by lower borrowing costs.

Luxury Market
Although supply has outstripped demand in Toronto’s luxury marketplace throughout 2024, attractive market conditions in recent months have brought savvier buyers back to the negotiating table. Based on my research, year-over-year supply levels in this sector have increased by 16%; however, transactions increased during the same period by approximately 42%. While those operating within this marketplace are generally less affected by the sensitivities of interest rate hikes, consumer confidence in long-term market fundamentals remains robust.

Rental Market
With a higher-than-average number of condominium completions and purpose-built rental buildings underway, Toronto’s rental market has again been challenged by a higher supply level. We have witnessed new rental listings increase by approximately 56% year over year. The number of rental transactions, however, has also increased by 36%—a sign of population growth and high demand for quality rental products in a competitive central marketplace. Rental rates have declined year over year by approximately 5%, likely making a more balanced and affordable marketplace attractive for prospective tenants entering the market. With declining rental rates and a record level of supply to come in the new year, a case for investment under these current conditions seems less attractive.

Pre-construction Market
The pre-construction market is facing its toughest challenge in all the years I have been a broker. According to a recent Urbanation report, new condominium sales are down year over year by 63% and 84% from the same period in 2022—the slowest year since 1996. Unsold inventory has increased by 16% year over year, and 2025 is poised to be a record year for completed inventory. This situation will only add further supply constraints to the resale market over the next two years, as many investors will have to rent their suites out for one year to be eligible for an HST rebate. Many investors will post a significant loss on their deliverables, as appraised values are now lower than their initial purchase prices. Years of stagnant growth in the resale condominium market, declining rental rates, escalating development charges and our current interest rate levels have made the case for purchasing pre-construction uncompelling.

As we transition into a more end-user–friendly environment, I challenge developers to design spaces that are both functional and inspiring. Many of the end-users we work with on a daily basis are not encouraged or motivated to live in many of these new buildings, which were designed for tenants. This market sector will be interesting to track in the year ahead.

A Look Ahead
In 2025, we will not see a straight road to recovery. We will experience bumps along the way due to present economic and political factors and fluctuating supply levels beyond our control. The freehold market will undoubtedly outperform the condominium market, which will see certain pockets fare much better than others. Small owner-occupied buildings in less dense neighbourhoods will be far better insulated than investor-dominated towers in the central core. My suggestion for all potential sellers and buyers is to remain as well informed as possible. This year will be a dance between buyer demand and interest rates, with supply providing the soundtrack. Looking back at 2024, sellers in Q1 benefitted from low supply, while a surplus impacted sellers in mid to late Q2.

For the months ahead, we must focus on the active supply levels. As soon as it becomes common knowledge that a specific marketplace is showing signs of growth, it will trigger additional supply. I am confident of this. Our real estate market is evolving faster than normal, and looking for opportune moments will make the difference.

As I reach my twentieth year in the business, I have been so fortunate to work alongside such incredible clients and their unique properties. I have an encouraging wife and children who make me better each day, as well as a team that works relentlessly throughout the year to ensure our clients’ objectives are met. Thank you all. My family and the Bibby Group would like to wish you all wonderful holidays, good health, happiness, and the very best for 2025!