A wave of Canadian homeowners, facing sharp increases in mortgage payments, are choosing to sell their properties, resulting in the highest number of housing units for sale in Toronto in over a decade. This trend is signaling a significant price drop in the coming months.
Toronto, a city where two-thirds of Canada’s condominiums are sold and a bellwether for other major metropolitan areas, is experiencing a surge in inventory. Data shows that inventories have surpassed levels seen 10 years ago, while sales have lagged behind. This disparity between rising inventory and stagnant sales reflects significant stress in Canada’s largest property market, according to real estate consultants.
The surge in available properties can be attributed to homeowners and investors who purchased houses and apartments five years ago at record-low mortgage rates. Their aim was to capitalize on Toronto’s lucrative rental market. However, these mortgages are now reaching their renewal periods in an interest rate environment drastically different from five years ago.
Mortgage rates have climbed considerably, despite the Bank of Canada’s recent efforts to guide them down. Unlike the United States, where homeowners enjoy fixed rates for the entire duration of a 15-year or 30-year mortgage, Canadian mortgages typically last for 25 years and are renewed every three to five years. Under current rates, many homeowners are facing a doubling of their mortgage payments, as calculated by ratehub.ca, a mortgage comparison website.
Next year, a staggering C$300 billion ($219.33 billion) in mortgages held by chartered banks will come up for renewal. Carl Gomez, chief economist at CoStar Group, a real estate information provider, explains that some investors are simply choosing to abandon their units due to unaffordability. At the same time, many are hesitant to lower asking prices and accept losses on their investments, at least for now.
“There’s just limited willingness to lose money,” said Daniel Foch, director of economic research at RARE Real Estate. “It seems like nobody has really adjusted their expectations to a market in which they aren’t going to make a profit,” he said.
The trend is particularly pronounced in the condominium market, where inventory has reached historic highs, according to John Lusink, president of Right at Home Realty, Canada’s largest independent housing brokerage firm. The current supply would take more than five months to sell.
“It is a buyers’ market with no buyers,” Lusink said.
According to the Toronto Regional Real Estate Board, representing 70,000 brokers and salespeople in the area, listings have increased by almost 25 per cent in the first three months of 2024 compared to the same period last year. Meanwhile, sales have only edged up by 5.3 per cent.
The Bank of Canada’s next rate decision is scheduled for July 24, with most economists anticipating another 25 basis point cut in the overnight rate. Last month, the bank trimmed the benchmark rate to 4.75 per cent from 5 per cent, marking the first reduction in four years. However, economists note that even with a 100 basis point decrease in the central bank’s rate, there will be a muted impact on mortgage rates coming up for renewal. Five-year fixed rates are linked to long-term bond yields, which are expected to remain in the 3 per cent to 4 per cent range.
“Something’s got to give,” Lusink said, predicting that Toronto condo prices could drop by 10 per cent by the end of the year.
