A drop in detached home prices in certain parts of the country drew in a surge in homebuyers in the second quarter of the year, according to a new report by RE/MAX Canada.
But the comeback in the detached market was cut short when the Bank of Canada’s interest rate hikes resumed in June, the report said.
RE/MAX tracked average prices and sales activity in 82 districts in the Greater Toronto Area, Greater Vancouver Area and the Fraser Valley in the first quarter of the year.
York Region in the GTA saw a 104-per cent increase in buying activity in the second quarter of 2023 with 2,328 sales compared to 1,143 in 2022 during the same period. In Langley, B.C., sales also rose in the quarter, with a 7.9-per cent increase amounting to 574 homes sold compared to 532 a year prior.
“Buyers had become acclimatized to the higher interest rate environment that we’ve experienced through this past six months. And so affordability still a key,” Elton Ash, executive vice-president of RE/MAX Canada, told Global News.
He said nationally, single family detached remains the most preferred form of housing in the country, with it also trending upwards for millennials as their families grow.
The report focused on “hot pockets,” looking at both downtown cores and city suburban areas. In downtown Toronto, detached homes, while desired, remain the most expensive. But outside city cores prices tend to be lower, keeping it popular among buyers.
Buyers in the so-called 905 region of the GTA are also not subjected to the municipal land transfer tax of two per cent to 2.5 per cent implemented by the City of Toronto, the report notes.
“As such, the region continues to experience solid demand, as evidenced by the uptick of nearly 18 per cent in overall housing sales in June (compared to year ago levels for the same period).”
The impact of higher rates
Ash said with a high-interest environment, additional costs can create added affordability issues.
“When you look at the cost to buy the home, let alone, you know, carry it thereafter, that is the initial cost. You add in your legal fees, your land transfer tax, you know, it becomes prohibitive,” he said.
But while the surge in buying helped to “mitigate” the decline in home values in the three regions the report focused on, the average price still fell short of last year’s in most neighbourhoods.
Approximately 93 per cent of detached homes posted a decline in value in the first six months of 2023, compared to that same period of 2022.
In addition, the report also found fewer detached homes changed from one owner to another year-over-year with RE/MAX citing a “critical shortage” of properties preventing more homes from being bought.
Nearly half of GTA markets reported a decline in new listings in June 2023, with three reporting as high as a 58 per cent drop and two Greater Vancouver markets seeing drops of more than 20 per cent.
According to Ash, affordability and inventory are contributing to the lower volume of single detached in the city core. He said with lower inventory, it keeps people especially in city core neighbourhoods from selling because they “don’t know what they’re going to move to because there’s nothing for them to select from.”
“You kind of get this self-fulfilling issue that’s going on,” he explained. “Whatever your motivation is to move from your current home to a new home, if you don’t know what you’re going to move to, you’re suddenly very cautious.”
RE/MAX says the surge was tempered this summer by the slew of more interest rate hikes by the Bank of Canada, which prompted home prices to drop across much of Canada.
“While the impetus was short-lived, it was not due to a lack of willing buyers,” RE/MAX president Christopher Alexander said in a statement.
Interest rate hikes have prompted buyers to “take a step back,” but Ash said with the lack of inventory of houses the country may not have a big change to pricing.
Yet, looking forward he said he expects the market to continue to stabilize. With low inventory levels and a slowing buyer demand, it’s unlikely there will be another “external force” that would cause home prices to depreciate, Ash said.
“Any price changes will be minimal, and they’ll be specific to neighbourhoods as opposed to the overall general market,” he said.
Ash added that if the Bank of Canada hikes interest rates again at its next meeting Sept. 6, prices will likely not creep higher.