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The Move Smartly Report

August 2023
Top Data Trends & Key Stories
in Toronto Area Real Estate Right Now

John Pasalis
President, Realosophy Realty
ABOUT THE AUTHOR

John Pasalis is the President of Realosophy, a

Toronto real estate brokerage which uses data
analysis to advise residential real estate buyers,
sellers and investors. John is a frequent commenta-
tor on the Toronto housing market and real estate
consumer and industry issues. His research has
been shared with the IMF and cited by the Bank of
Canada and the Canadian Mortgage and Housing
Corporation (CMHC).

John holds a B.Sc. in Economics from the University

of Toronto, an M.Sc. in Business and Management
Research from the University of Reading and is
Doctoral Candidate in Business Administration
at the University of Toronto and the University of
Reading where he is researching housing markets.

Contact John

john@realosophy.com

647-347-7325
In this Report
The Market Now

By the Numbers:
Average Home Prices Trending Down in Toronto Area 4

On The Ground:
Some Sellers Sticking to Unrealistically High Price Expectations 6

Key Issue

The Federal Government Tries to Download the Housing Crisis 8

Data Dive

Toronto Rents Rising 5x Faster Than Historical Trends 10

Monthly Statistics: July 2023

House 16

Condo 20

Regional Trends 23

THE MOVE SMARTLY REPORT AUGUST 2023 3

The Market Now: By the Numbers

Average Home Prices Trending

Down in Toronto Area
Monthly Numbers Recap: July 2023

In my last two monthly reports (see June and July), I discussed some early signs
on the ground showing that Toronto’s housing market was beginning to cool.
Two months later, the chill in Toronto’s housing market has become far more
evident in the monthly data.

I’ll start by taking a quick look at the year-over-year trends in the housing
market before taking a look at how the market has changed over the past
two months.

Year-over-year, the average price for a house in the Toronto area was $1,353,902
in July, up 5% over the same month last year. Last month's median house price
was $1,191,500, up 6% over last year.

House sales in July were up 15% over last year, while new house listings were up
15%. The number of houses available for sale at the end of the month, or active
listings, was up 8% over last year.

The current balance between supply and demand is reflected in the Months
of Inventory (MOI), which is a measure of inventory relative to the number of
sales each month (for a more detailed explanation of this measure, see the final
section of this report). In July, MOI for houses increased to 2.7, a sharp increase
from 1.3 in May, just two months ago, indicating a slowing market.

The average price for a condominium (condo) in the Toronto Area was $762,239
in July, which is up 3% over last year. The median price for a condo in July was
$690,000, unchanged over last year.

Condo sales in July were up 17% over last year, and new condo listings were up
16% over last year. The number of active condo listings was up 12% over last

THE MOVE SMARTLY REPORT AUGUST 2023 4

year. The MOI increased to 3.4. Much like the market for houses, this is a rapid
increase from 1.6 in May, indicating a slowing.

For detailed monthly statistics for July 2023, the entire Toronto area market,
including house, condo and regional breakdowns, see the final section of
this report.

Recent Trends

A few noteworthy trends over the past couple of months are worth looking at.

As mentioned, when MOI increases, it’s generally a sign that the housing
market is cooling down — and how quickly MOI increases tells us a lot about
how quickly it’s cooling. When the MOI increases gradually, it’s a sign that the
housing market is also cooling gradually, while a sharp increase in the MOI is a
sign that the market is slamming on the brakes.

The sharp increase in the MOI we’re seeing over the past two months is an
indicator that the market is cooling down rather quickly.

Another interesting trend is the change in average and median prices over the
past two months. Average and median prices for low-rise houses are down
8% from the most recent highs reached in May. While average prices typically
decline between May and July for seasonal reasons, as the summer months
typically see buyers slowing down their search, the seasonal decline is typically
less than 8%, suggesting that this recent price dip may be about more than just
seasonality.

The City of Toronto saw median prices fall 10% between May and July, while the
suburban regions saw median prices dip by 5% to 7%.

On the other hand, average and median condo prices have not changed very
much over the past two months, an interesting trend given that inventory levels
are already considerably higher for condos.

THE MOVE SMARTLY REPORT AUGUST 2023 5

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The Market Now: On the Ground

Some Sellers Sticking to

Unrealistically High Price
Expectations
Over the past month, I have been noticing more and more homes listed for sale
for relatively aggressive prices.

In some cases, the seller lists their home with an artificially low asking price
to attract multiple buyer offers. After attracting multiple offers on their offer
date, the sellers end up rejecting all the offers because none met their price
expectations. The seller then relists their home for sale at the price they want
and the home sits on the market for weeks as buyers refuse to meet the seller’s
price expectations.

Some sellers are gradually reducing their prices, but some sellers are taking
their homes off the market with a plan to relist them for sale in September.
While this is a common approach agents take during the summer months when
buyer activity typically cools down, it is going to be interesting to see how well
this strategy works this year as we start to see the market perhaps cooling
beyond typical seasonal patterns.

THE MOVE SMARTLY REPORT AUGUST 2023 6

This year might be different because we are seeing a shift in the market due
to today’s much higher interest rates. Some buyers are simply hitting pause
because they can no longer afford to buy a home at today’s interest rates,
in particular when they are being stress tested for a mortgage at approx-
imately 8%.

We are also starting to hear more from existing owners with multiple properties
who plan to list some of their investments for sale to deleverage.

What happens to home prices in the fall market will be driven by this delicate
balance between supply and demand. If the volume of new listings increases
more rapidly than the demand from buyers, we may see some downward pres-
sure on prices. On the other hand, if we see even a modest increase in demand
from buyers and no meaningful increase in new listings, we may see prices
remain relatively flat for the rest of 2023, much like the second half of 2022.

Time will tell which path Toronto home prices take.

THE MOVE SMARTLY REPORT AUGUST 2023 7

Key Issue

The Federal Government Tries to

Download the Housing Crisis
Canada’s Prime Minister Justin Trudeau was in Hamilton earlier this month to
announce that the federal government was investing $45 million to build and
repair 214 homes in the region.

Considering that Canada needs to build 3.5 million additional homes before
2030 in order to restore housing affordability, it’s surprising that our federal
government felt like this tiniest of investments in housing deserved a press
conference with our Prime Minister.

But the Prime Minister did make the most of the opportunity by laying out his
government’s latest views regarding Canada’s housing crisis when he said:

Note: Large Quote box

“I’ll be blunt as well - housing isn’t a primary federal responsibility. It’s not
something that we have direct carriage of. But it’s something we can and
must help with.”

The Prime Minister’s comments are deeply problematic for a number of reasons.

While the provinces and municipalities have far more control over the supply
of housing through provincial planning and municipal zoning, the federal
government controls virtually every aspect of the demand for housing. Federal
agencies, including the Office of the Superintendent of Financial Institutions
(OSFI) and Canada Mortgage and Housing Corporation (CMHC), control the
mortgage underwriting guidelines for mortgages in Canada. Federally backed
mortgage insurance is what enables first-time buyers to buy a home with less
than a 20% down payment.

Perhaps most importantly, the federal government also controls Canada’s pop-
ulation growth rate, which directly impacts the demand for housing in Canada.
The fact that Canada’s population is growing far more rapidly than our ability to

THE MOVE SMARTLY REPORT AUGUST 2023 8

build homes is one of the primary factors behind Canada’s housing crisis. This is
something I discussed in last month’s report.

As highlighted by Move Smartly editor Urmi Desai during our August 2023 Real
Estate Roundtable, the Prime Minister’s change in his communication strategy
is important because it signals the federal government’s desire to download the
blame for Canada’s housing crisis to the provinces, most of which are led by
conservative premiers.

This is a strategy that mirrors the approach of Conservative leader Pierre

Pollievre. But instead of blaming Conservative premiers for Canada’s housing
crisis, Pollievre is blaming municipal “gatekeepers.”

Both federal leaders continue to ignore the federal government's important role
in driving the demand for housing in Canada. Economist Mike Moffatt posted an
important question on Twitter last month.

Our federal government continues to increase the number of study visas they
issue each year, even though they know we don’t have adequate housing for
these students because housing is not a “primary responsibility of our federal
government.”

While our Prime Minister thinks this is an acceptable response, I know many
Canadians, foreign students and workers who are experiencing this housing
crisis first-hand disagree.

THE MOVE SMARTLY REPORT AUGUST 2023 9

Data Dive

Toronto Rents Rising 5x Faster

Than Historical Trends
Anyone who has lived in Toronto for some time might conclude that the city
has always had a rental crisis. Vacancy rates have been stubbornly low for
decades, and I remember hearing about Toronto’s rental crisis when I was still a
university student.

When things feel like a never-ending crisis, it’s hard to figure out if things have
always been this bad or if there was a point in time when things got dramatically
worse for renters. The only way to answer this question is to look at the data.

The rental data I will be using for this Data Dive is based on condominium
apartment rental transactions from the Toronto Regional Real Estate Board’s
MLS system. The chart below shows the average rental price for a condominium
apartment from 2003 to July 2023.

When looking at a relatively long time series of rents, we are interested in

understanding if rents have been rising at a similar rate over time or if there is a
particular period where rents were rising much faster than other periods. In this

THE MOVE SMARTLY REPORT AUGUST 2023 10

chart, it’s quite clear that rent prices were rising gradually between 2003 and
2015 before rapidly accelerating in the following years.

Average rents declined in the second half of 2020 as part of the urban exodus
due to COVID, but they quickly recovered and are currently well above pre-
COVID levels.

To get a better understanding of how average rents changed during the period
of modest rent growth between 2003 and 2015 vs the following period, it’s
helpful to convert the single-month average prices to a twelve-month average
for each month, as this way, we are not putting too much emphasis on the
fluctuations in a single month’s average price data. Going forward, any reference
to average rent will refer to the previous twelve-month average.

In January 2004, the average condo rent was $1,564; by the end of 2015, the
average rent had reached $1,862. That translates to a $298 increase in average
rent over twelve years. If we break out this twelve-year increase into an average
annual number, we find that the average condo rent increased each year by
$25 per month.

In contrast, the average condo rent for January 2016 was $1,866, which climbed
to $2,786 in June 2023. That translates to a $920 increase in the average rent
over a seven-and-a-half-year period. If we break out this seven-and-a-half-year
increase into an average annual number, we find that the average condominium
rent increased each year by $123 per month.

So if it feels like Toronto’s rental crisis keeps getting worse, that’s because it is
getting worse.

Annual condominium rents in Toronto are increasing 5 times faster after 2016
than they were before 2016.

THE MOVE SMARTLY REPORT AUGUST 2023 11

What might be driving this rapid increase in rent since 2016?

The common explanation we hear from politicians, some economists and

housing advocates is that this rapid increase in rents is due to a lack of supply.
Specifically, either the city or province (or both) are restricting the supply
of new housing through red tape, restrictive zoning policies, or to satisfy the
demands of NIMBYs, or Not-In-My-Backyard-Neighbours who protest any new
housing development planning for their area.

But unfortunately, this narrative doesn’t really hold up very well in explaining
why rents have so rapidly accelerated when one looks at the data. Average
annual condo completions in the Toronto CMA were actually higher in the years
after 2016 than before 2016.

THE MOVE SMARTLY REPORT AUGUST 2023 12

This does not mean that provinces and municipalities don’t need to do more
to encourage more housing, especially when we consider that this increase in
condo completions after 2016 was also coupled with a decline in new low-rise
completions.

But ultimately, condo rents are a function of the demand for rentals and the
supply of new completions each year. While the supply of new condo units
increased, this growth did not help to cool rent prices because Ontario’s
population growth, and by extension, the demand for rental housing, has grown
far more rapidly over the same period.

Prior to 2016, Ontario’s population was growing by an average of 125,000 people

per year. We saw that number increase to well over 200,000 between 2016 and
2020. After a short dip in 2020 due to COVID, Ontario’s population has grown by
over 500,000 over the previous twelve months.

THE MOVE SMARTLY REPORT AUGUST 2023 13

When a government rapidly increases the demand for housing without giving
any thought to where people will live, the natural result is a market where
average rents are increasing five times faster than historical trends.

When Canada’s new immigration minister Marc Miller announced that Ottawa
might increase the rate at which our population is growing, this raised some
questions from people concerned about Canada’s housing crisis.

University of Toronto economist Rob Gillezeau unpacked the federal govern-

ment’s rationale and consequences of their immigration strategy on Twitter
when he said (emphasis is mine):

THE MOVE SMARTLY REPORT AUGUST 2023 14

 It's hard to fathom that government would knowingly
choose to further exacerbate the housing crisis, but at
least the federal government is being clear about its
policy path. I do appreciate

Marc Miller's honesty on the rationale. Rather than

engaging in other reforms to ensure long run fiscal
sustainability, government is choosing a temporary
worker + immigration to path to meeting that fiscal goal.
That may be an economically viable path, but it comes
with enormous costs with respect to the housing
crisis & inequality that will disproportionately hurt
newcomers, young people, renters, and working
& middle class Canadians.

In short, rather than engaging in other reforms to ensure Canada’s long-run

fiscal sustainability, our federal government is using a shortcut solution, rapidly
increasing Canada’s population growth, which they should know comes with
enormous costs to the poorest households in Canada.

Sacrificing the poor for a shortcut to economic growth is not a promising vision
for Canada.

THE MOVE SMARTLY REPORT AUGUST 2023 15

Monthly Statistics

House Statistics
House sales (low-rise freehold detached, semi-detached, townhouse, etc.)
in the Greater Toronto Area (GTA) in July 2023 were up 15% over the same
month last year.

New house listings in July were up 15% over last year.

THE MOVE SMARTLY REPORT AUGUST 2023 16

The number of houses available for sale (“active listings”) was up 8% in July
when compared to the same month last year.

The Months of Inventory ratio (MOI) looks at the number of homes available
for sale in a given month divided by the number of homes sold in that month. It
answers the following question: If no more homes came on the market for sale,
how long would it take for all the existing homes on the market to sell, given
the current level of demand? The higher the MOI, the cooler the market is. A
balanced market (a market where prices are neither rising nor falling) is one
where MOI is between four to six months. The lower the MOI, the more rapidly
we would expect prices to rise.

While the current level of MOI gives us clues into how competitive the market is
on-the-ground today, the direction it is moving in also gives us some clues into
where the market may be heading.

The MOI for houses increased sharply from 1.3 in May to 2.66 in July, signalling
a rapidly cooling down market.

THE MOVE SMARTLY REPORT AUGUST 2023 17

The share of houses selling for more than the owner’s list price decreased to
50% in July.

The average price for a house in July was $1,353,902 in July 2023, up 5% when
compared to the same month last year but down 8% over the past two months.

THE MOVE SMARTLY REPORT AUGUST 2023 18

The median house price in July was $1,191,500, up 6% over last year, but also
down 8% over the past two months.

The median is calculated by ordering all the sale prices in a given month and
then selecting the price that is in the midpoint of that list such that half of all
home sales were above that price and half are below that price. Economists
often prefer the median price over the average because it is less sensitive to big
increases in the sale of high-end or low-end homes in a given month which can
skew the average price.

THE MOVE SMARTLY REPORT AUGUST 2023 19

Condo Statistics
Condo (condominiums, including condo apartments, condo townhouses,
etc.) sales in the Toronto area in July 2023 were up 17% over the same
month last year.

New condo listings were up 16% in July over last year.

THE MOVE SMARTLY REPORT AUGUST 2023 20

The number of condos available for sale at the end of the month, or active
listings, was up 12% over last year.

Condo months of inventory increased from 1.6 in May to 3.4 MOI in July, a sign
that the condo market is rapidly cooling down.

THE MOVE SMARTLY REPORT AUGUST 2023 21

The share of condos selling for over the asking price declined to 34% in July.

The average price for a condo in July was $762,239, up 3% over last year.
The median price for a condo in July was $690,000, unchanged compared
to last year.

THE MOVE SMARTLY REPORT AUGUST 2023 22

Regional Trends

Houses
Average house prices and sales were up across the GTA last month. New listings
were up in all regions, and up by double digits in Durham, Peel and York. The MOI
is in line with last year’s levels suggesting a similar balance between demand
and supply as last year

Condos
Condo sales were up across all regions in the GTA last month, with the suburbs
seeing the most rapid increase in sales. Average prices were up across all four
regions. Unlike for houses, MOI numbers this year are lower in most regions,
suggesting a more competitive now as compared to last year; however,
month-to-month MOI numbers are increasing (as discussed in the first section
of this report).

THE MOVE SMARTLY REPORT AUGUST 2023 23

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Durham Region Market Trends

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THE MOVE SMARTLY REPORT AUGUST 2023 24