Toronto Experiences Sharp Decline in Real Estate Sales

Home sales in Toronto plummeted nearly 19% in December 2024 compared to November, marking the first monthly drop since July, according to data from the Toronto Regional Real Estate Board (TRREB), as reported by Bloomberg. Despite the sales decline, the average home price rose 0.4% to CAD 1.09 million (USD 760,500).

Trends in 2024

In September 2024, Toronto saw a modest 3.3% increase in home sales, with 5,707 transactions recorded. This figure jumped sharply in October, with a 14% rise to 6,390 sales, reflecting a 44.4% year-over-year increase. Despite a cooling market in December, the year closed with a 2.6% increase in total transactions and a 16% rise in new listings compared to 2023.

The surge in home prices and borrowing costs has created significant barriers for buyers entering Canada’s housing market. However, the Bank of Canada’s interest rate cuts in 2024 and the anticipated continuation of this trend in 2025 are expected to improve affordability and market conditions.

"High interest rates have posed substantial challenges for homebuyers, suppressing sales below normal levels," said TRREB President Alecia Barry-Sproul. "Further rate cuts in 2025, combined with housing prices remaining below historic highs, should enhance market conditions over the next 12 months."

Key Market Developments

While overall sales ended on a weaker note in December, the Toronto housing market showed resilience in 2024:

Record-breaking condominium completions: The completion of condo units reached new highs, pushing the share of rental properties in newly built condominiums to 41%, the highest among all Canadian metropolitan areas (CMAs).
Increased rental activity: Amid surplus inventory in the resale market, investors turned to rentals, maintaining low vacancy rates in condos.
Rental market dynamics: Across Canada, the rental market saw a historic 30-year high in supply growth. Despite this, the rental market remains tight in major cities, including Toronto, where affordability challenges persist for many residents.
The national vacancy rate for purpose-built rental apartments rose to 2.2% in 2024, compared to 1.5% in 2023. However, it remains below the 10-year average of 2.7%. The average rent for two-bedroom apartments increased by 5.4% year-over-year, a slowdown from the record 8% rise in 2023.

Economic Outlook and Policy Changes

Several factors are influencing demand and the broader market:

Reduced migration volumes: Tighter regulations, particularly affecting foreign students, have curbed immigration levels, slowing demand growth.
Persistent homeownership challenges: Toronto and Vancouver remain prohibitively expensive, making rental options more viable for many households.
In response to the housing crisis, the Canadian government introduced measures to improve affordability:

Expanded mortgage access: Ottawa recently allowed insured mortgages with a 30-year amortization period for first-time buyers and new home purchases, easing monthly payments despite higher long-term interest costs.
These measures are expected to stimulate home sales and support a 7% annual price increase for single-family homes, bringing the average to over CAD 900,000. Condos are forecasted to see a 3.5% price rise to CAD 605,993, making them a more accessible option for buyers in 2025.

Challenges and Risks Ahead

While the Bank of Canada continues to cut interest rates, bringing its overnight rate to 3.25% in December 2024, further reductions are anticipated in 2025, potentially lowering the rate to 2.25%, according to Canadian Imperial Bank of Commerce economist Andrew Grantham.

Despite these measures, challenges persist:

- Economic sluggishness: Canada’s economic growth remains tepid, with uncertainties surrounding trade disputes with the U.S. among the key risks.
- Investor caution: High borrowing costs and inventory surpluses are dampening investor enthusiasm, particularly in the condo market.

Toronto’s housing market in 2024 was marked by mixed signals—a significant decline in December sales but overall annual growth in transactions and listings. Policymakers are banking on lower interest rates and expanded mortgage options to revitalize the market in 2025. However, the high cost of living and uncertainties in the broader economy pose significant hurdles. The coming year will be pivotal in determining whether these measures can balance affordability with market stability in Toronto’s highly competitive housing sector.