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Asking price of GTHA housing drops, but rents stay high: Bullpen

Interest rate hikes affect unsold housing prices, hit investors and developers hardest

Ben Myers, president of Bullpen Consulting. (Courtesy Bullpen Research & Consulting Inc.)

Average asking prices for unsold single-family housing in the Greater Toronto and Hamilton Area (GTHA) were down 30 per cent in October from their peak in July 2022, according to Bullpen Research & Consulting Inc.

While this might give first-time homebuyers a reason to celebrate, other factors including higher interest rates still make acquisitions a challenge for many prospective buyers.

Unsold single-detached and semi-detached houses across the GTHA listed for an average of $1.74 million in October, down from $2.48 million in July 2022.

Toronto-based Bullpen discovered condo prices also fell, to $1.2 million in October. That's a 26 per cent decline from the peak in August 2022.

Townhouse asking prices fell by 10 per cent to $1.26 million from an August 2022 peak of $1.4 million.

Unlike the rest of the GTHA, however, the City of Toronto continued to see rising asking prices for low-density housing on a per-square-foot basis.

Ben Myers, the president of Bullpen, said in an interview with RENX Homes the data shows interest rate hikes are taking their toll, most acutely impacting investors and developers.

“If you’re a first-time buyer, you might be pretty excited that prices are coming down and you can buy a new home,” he said. “Whereas if you’re an investor, you might be discouraged because you want to buy an asset and see the value go up in the future.”

Moderating price decreases by geography

Myers noted the price fluctuations are more varied on a local level, with some areas still seeing increases.

For example Greater Toronto Area suburbs, Hamilton and Brantford, and Kitchener-Waterloo, Cambridge and Guelph saw declines in the year-to-date average asking price per square foot for low-density housing. The year-to-date decline for the GTA suburbs was 1.5 per cent to $691; 2.1 per cent to $551 for Hamilton and Brantford; and 9.8 per cent to $501 for Kitchener-Waterloo, Cambridge and Guelph.

Asking prices in the City of Toronto, however, increased 5.9 per cent to $1,152 per square foot.

“There still seems to be a decent amount of product launching in the marketplace. There’s at least enough confidence for developers to come up with product. But I think the most successful developments are going back to summer/fall 2021 price levels,” Myers said.

The average price per square foot for unsold condos told a similar story: a GTHA-wide decrease of 1.9 per cent to $1,511.

Toronto experienced a 1.8 per cent reduction year-to-date to $1,607, while Kitchener experienced the biggest price drop of all the municipalities in the report at 6.6 per cent year-to-date, to $860.

Hamilton, Pickering, Vaughan and Oakville saw increases in the average price per square foot for unsold condos by 10.9 per cent, 4.4 per cent, four per cent and 1.2 per cent, respectively.

Myers said this is due to older, less expensive stock being sold while some newer product is not selling as quickly in those cities.

Another critical factor is that the data is for asking prices rather than sales prices – so prices may not be going down due to developer “stubbornness” to go mark-to-market.

Affordability and market pressures

Though prices for unsold housing may be declining, the same could not be said of rent in Toronto for condos and purpose-built rental apartments completed during the past five years.

The average asking rent for a one-bedroom condo is $2,556 in Q4 2023 (October only), a six per cent increase from $2,404 in Q4 2022. Two-bedroom condos saw a 12 per cent increase in average asking rent from Q4 2022 to Q4 2023, from $3,095 to $3,455.

The average cost of a one-bedroom purpose-built rental apartment decreased from $2,754 in Q4 2023 to $2,879 in Q4 2022, and from $3,830 in Q4 2022 to $3,646 in Q4 2023 for a two-bedroom unit.

Yet the average rent per square foot for a one-bedroom purpose-built rental apartment rose to $4.99 in Q4 2023 against $4.88 in Q4 2022.

In the report, Myers said “the sample size of listings is much smaller” for purpose-built rental apartments, “and averages can be impacted by the composition of listings by location and size.”

The market is feeling the impact of interest rates, Myers said, with people’s “budget of what they can afford” to buy being strained.

“Rents are still going up. Honestly, affordability is really getting crunched,” Myers observed.

Strong rental rate growth in the condo market is holding up because fewer people work in downtown office towers, unemployment is creeping up, and development completions are adding more supply in the downtown.

Though a first-time home buyer may be happy with the price drops, investors will be discouraged by shrinking price growth, Myers said. Price growth in the resale housing market could stagnate for one or two years, possibly longer, in the “higher-for-longer interest rate environment.”

Some developers will face squeezed margins, forcing them to hold back project launches. Because revenues fell, developers cannot make a profit without buying land at a much cheaper price. Myers said.

While costs are starting to trend down, it is not steep enough to justify big investments in new acquisitions, he concluded.

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