Toronto Housing Market Slows Down in February 2023 Amidst Rising Interest Rates

The Greater Toronto Area's housing market has seen a substantial decline in sales since early 2022 when the Bank of Canada started raising interest rates. Although February 2023 saw a slight uptick in home buying, the number of new listings was also down substantially year-over-year. As a result, the average selling price and MLS® HPI remained relatively stable, having trended lower through the spring and summer of the previous year.

Decreased Sales and Listings

According to the Toronto Regional Real Estate Board (TRREB), GTA REALTORS® reported 4,783 sales through the MLS® System in February 2023, which is a 47% decrease from the same period in 2022. The last full month before the interest rate hikes took effect. Similarly, the number of new listings was down by 40.9% to 8,367. The trend of falling sales and new listings suggests that the housing market in the GTA is experiencing a slow-down in activity.

Impact of Interest Rate Hikes

The decline in the housing market can be attributed to the Bank of Canada's interest rate hikes, which started in early 2022. These hikes have raised the cost of borrowing, prompting many homebuyers to opt for lower-priced homes. TRREB President, Paul Baron, explains that the share of home purchases below one million dollars is up significantly compared to last year, as homebuyers try to offset the higher borrowing costs. The increase in interest rates has also affected home prices, which have dropped significantly from the record peak of February 2022. However, the decline in home prices has somewhat mitigated the impact of the higher borrowing costs.

Buying Intentions on the Rise

Despite the decline in sales and new listings, recently released Ipsos polling suggests that buying intentions have picked up for 2023. However, this increased demand will run up against a constrained supply of listings, leading to increased competition between buyers. TRREB's Chief Market Analyst, Jason Mercer, explains that this will eventually lead to renewed price growth in many segments of the market, especially those catering to first-time buyers facing increased rental costs.

Average Selling Price and MLS® HPI

The average selling price for February 2023 was $1,095,617, which is a 17.9% decrease compared to February 2022. The share of sales below $1,000,000 was 57% in February 2023, versus only 38% a year earlier, which has contributed to the overall decline in the average selling price. On a monthly basis, the average price followed the regular seasonal trend, increasing relative to January 2023. The MLS® Home Price Index (HPI) Composite Benchmark was down year-over-year by a similar annual rate of 17.7%, but was also up on a monthly basis.   The Toronto housing market has experienced a decline in sales and new listings since the Bank of Canada started raising interest rates in early 2022. While February 2023 saw a slight uptick in home buying, this increased demand is likely to run up against a constrained supply of listings, leading to renewed price growth in many segments of the market. Despite the overall decline in the housing market, the Toronto housing market remains attractive to many homebuyers, and buying intentions have picked up for 2023.