There was a “sharp rebalancing of demand-supply conditions” in Toronto’s real estate market last month as the Bank of Canada’s recent decision to resume its rate hiking cycle pushed some buyers to the sidelines, a new report from RBC suggests.
The report, released last week, notes that home sales fell 6.9 per cent in Toronto in June after soaring by 32 per cent in April and May when the Bank of Canada was keeping its key overnight lending rate on hold.
The central bank, it should be noted, increased its overnight rate by 25 basis points last month and is widely expected to raise rates again on Wednesday.
The bank’s key lending rate is already at its highest point since 2001 at 4.75 per cent.
“The upshot of this is a sharp rebalancing of demand-supply conditions,” economists Robert Hogue and Rachel Battaglia wrote in the RBC report. “For now, home prices continue to appreciate rapidly. The area’s MLS composite benchmark price climbed a solid 2.5 per cent month-over-month to $1.16 million in June. But more balanced conditions point to a slower pace of appreciation in the months ahead.”
RBC said in the report that it believes the surge in Toronto home values which pushed benchmark prices up 8.9 per cent since the market reached a “cyclical bottom” in February can’t continue.
It notes that the number of homes available for sale rose in “in every major market last month,” including Toronto.
The bank does concede that “the growing supply hasn’t done much to ease upward price pressure” so far.
But it says that should the trend of fewer buyers and more sellers continue, price growth should moderate.
“We’ve been surprised by the speed with which some markets (e.g., Toronto and Vancouver) rebounded this spring,” the report notes. “Our view had been—and in fact remains—that the initial stage of the recovery would be gradual in the face of massive ongoing affordability challenges. Buyers retreating in key markets in June could be sign that the future trajectory will be more measured.”
The average price of a Toronto home across all property types peaked at $1,334,062 in February 2022 before dropping to a low of $1,037,542 amid an aggressive campaign to push up the cost of borrowing.
Home prices, however, have been on the rise for months now with the average selling price in the GTA hitting $1,182,120 in June.
A detached home sold for an average of $1,530,997 in June.
In its report, RBC said that while the “surprisingly quick rebound in activity this spring lost steam last month,” higher interest rates will continue to mean that affordability will be “extremely challenging for buyers.”