Strained affordability amid higher borrowing costs continues to drag down Toronto’s “lethargic” housing market this summer, according to a new report by RBC Economics.
The report, published last week, indicates that more rate cuts are needed before housing markets across the country, including Toronto, begin to see an uptick in sales activity.
Despite “a modest resales advance in June,” the report read, that gain was essentially “reversed” by a 0.7 per cent dip in July.
“Buyers are clearly looking for larger rate cuts amid strained affordability,” the report noted.
On the supply side, the report states, inventories are “accumulating rapidly.” Soft demand has come “well short of absorbing the surge in properties up for sale,” according to the report.
“This is especially true of condo apartments where a wave of new unit completions this year boosted active listings by 64 per cent from a year ago,” the report read.
Detached home listings are also up by 48 per cent year-over-year.
The report noted that home prices have stayed “largely flat” over the past four months.
The aggregate MLS Home Price Index benchmark was $1.09 million in July, essentially unchanged from April but down five per cent from one year ago, a decline which takes last fall’s “mild correction” into account.
The report went on to state that condo prices accounted for “most of the annual decline.”
“We expect mounting condo inventories will put downward pressure on prices in the near term,” the report read. “Recovering demand later this year and into 2025 should contain that soft patch.”
According to the author of the report, the Bank of Canada’s interest rate cuts earlier this summer represented a “turning point” for struggling housing markets across Canada, but the impact so far has been “mixed.”
“After a small uptick between May and June, home resales fell again in some markets including Vancouver, Calgary and Toronto in July, according to early reports from local real estate boards. However, activity picked up slightly in Edmonton and Montreal,” the report stated.
“It will take deeper rate cuts to meaningfully reduce ownership costs and stimulate homebuyer demand more broadly.”
The Bank of Canada reduced its key interest rate to 4.5 per cent in July, the second consecutive cut this year following an aggressive rate-hiking cycle that began in early 2022.
“The balance between supply and demand varies considerably from market to market,” the report read.
“Conditions in Calgary, Edmonton and to a lesser extent Montreal favour sellers. It’s the opposite in the Toronto area where buyers have the upper hand—albeit just barely. A tenuous equilibrium holds in Vancouver.”