Real estate market experts are saying Toronto’s housing correction is over, with prices and home sales rising month-over-month back-to-back for the first time since 2022. CIBC’s deputy chief economist Benjamin Tal gives us the scoop on where the market is headed this summer.
Is the housing correction over?
Yes, but we have to remember that the main reason why the market is stabilizing is the lack of supply. People are not listing — it’s not that the demand is back to normal. The market is turning into a seller’s market, especially for relatively cheap units — in Toronto and the GTA, we’re talking about something between $800,000 to $1.1 million.
What has changed from four months ago?
Well, nothing! Back then there was no supply, now there is no supply. It seems that demand is a bit stronger for more affordable units, especially after the Bank of Canada signaled they are not going to raise interest rates. Unfortunately, the Consumer Price Index numbers are not behaving, the inflation numbers are not behaving, and the Bank of Canada might move again in July. That will actually send a wave of uncertainty into the market that might slow down activity over the next few months.
What about mortgage rates?
The speculation regarding the Bank of Canada is not ending. It’s hurting the five-year rate and leading to higher mortgage rates that will introduce some softening of the market, no question about it. So it’s not going to be a linear trajectory. There are some factors that will ease or slow down recovery.
If you look at the distribution of mortgages, the vast majority of people are now taking one- and two-year mortgages, as opposed to five-year variable ones. That’s something I’ve never seen before. I think people realize that interest rates will start falling in 2024, and they’re buying time taking one or two years, although it’s expensive, and then will ride the rest of the way down.
What do you predict for the months ahead?
The rate of improvement will slow down over the next few months. I think that, quite frankly, the housing market is stabilizing too fast. The fact that the market is stabilizing with these interest rates after such a significant increase is telling us how tight the market is, right? It’s not just that there’s demand and everyone’s willing to buy now. It’s that there’s no supply, and that’s protecting prices.