Toronto’s House Prices Will Continue to Fall, but Not at the Speed Seen This Spring: RBC Report

A person walks by a row of houses in Toronto on July 12, 2022. Cole Burston/The Canadian Press

Despite soaring interest rates that have dampened Toronto’s housing market in recent months, a new RBC report says the slide in activity “seems to be stabilizing.”

“The last four months have been very quiet but the sharp declining trend seems to be stabilizing,” said Robert Hogue, assistant chief economist at RBC, in the Nov. 7 report.

“Rising interest rates are clearly keeping demand cool at this stage. Yet they aren’t heating up supply either. So far there’s no indications higher rates are triggering any distressed selling wave.”

In late August, a report by TD Bank suggested that the average price of a home in Canada could fall an “unprecedented” 20 to 25 percent in the first quarter of 2023 from its peak seen earlier this year.

According to the RBC report, Toronto’s MLS Home Price Index (HPI) is down 18 percent (or $237,000) since the March peak, reversing almost half of the $504,000 increase earlier in the COVID-19 pandemic.

While the price drop could mean positive news for prospective home buyers, high interest rates pushed by Canada’s central bank have driven up mortgage rates, offsetting the affordability that comes with a lower home price.

“The massive interest rate increases to date and a further 25 basis-point hike expected from the Bank of Canada by year-end will continue to significantly challenge buyers,” the RBC report said.

Pace Easing

In Toronto, home resale activities were “essentially flat” between September and October on a seasonally-adjusted basis (edging up just 0.2 percent), the report noted, and “little changed” from July at 62,000 units (annualized).

“Demand-supply conditions appear to be levelling off following this spring’s sharp deterioration,” Hogue wrote. “Property values are still falling though the pace is starting to ease.”

In its market watch report on Nov. 2, the Toronto Real Estate Board said that the monthly trends for both the MLS HPI and average selling price have “flattened” in recent months following the steeper declines experienced this spring and early summer.

“It’s still going down, just not at the same speed that we had seen,” Hogue said in an interview with the Toronto Star. “Certainly in terms of prices, in terms of home resell activity, things appear to be stabilizing. It’s probably a little premature to call it a bottom yet, but the pace of decline has significantly diminished in recent months.”

Other major Canadian markets also reported a smaller rate of depreciation in October, Hogue’s report noted, indicating that the declining price trends appear to be broadly moderating.