Monumental Changes in the Real Estate Market Fall 2024! Here's what you need to know!

Wow! The last 52 days saw more changes than in the previous 24 months! October marked a turning point for the GTA housing market as sales increased at their fastest pace since COVID, when interest rates were at record lows. 

Ciao! Welcome to a new episode of Building Wealth Through Real Estate...Brick by Brick with me, Nico James-Bock, Founder of The CondoWiz™ Group and Broker at Royal LePage Signature Realty in Downtown Toronto.  

While sales volumes remained below average last month, it won't be long before the market returns to a normal level of activity. 

With inflation back below or around the target 2%, more rate cuts on the horizon, and more relaxed mortgage insurance rules coming into effect on Dec 15th (including an increase in maximum amortizations from 25-to 30-years and an increase in the price cap from $1.0 to $1.5M), the momentum seen in October is expected to continue.

The next several months may see a 'pop' in activity as buyers waiting on the sidelines over the last couple years jump back in. 

Those waiting for further interest rate cuts should consider that the increase in demand underway will likely result in significantly higher prices in the coming months, thereby eliminating the benefit of any further rate decreases. 

Following the results of the recent U.S. election, five-year Canada bond yields have risen off their October lows as financial markets expect tax cuts and new tariffs imposed south of the border will most likely lead to higher inflation.

As such, fixed rate mortgages (currently at about 4%) may already be at or near their bottom, while variable rate mortgages (currently just above 5%) are not projected to fall much below the 4% level according to the latest bank forecasts.

So ask yourself, when do YOU want to buy? Now when there is a lot of inventory (ie choice), reasonable prices, many incentives, and fewer buyers competing or in the spring/summer when inventory levels will be much lower, incentives will all but have disappeared, and pricing is higher?

Ciao Ciao 😊

Transcript

Nico James-Bock (00:02.028)
The last 52 days, we saw the most changes in real estate that we had from the previous 75 days in the market. So the last 52 days started on October the 1st and we are here on November 22nd. We saw several changes that have rocked the real estate market and changed the landscape moving forward. Let's dive in to those changes right now.

My name is Nico James-Bock. I'm a broker with Royal Le Page Signature Realty in downtown Toronto. I'm also the founder of CondoWiz, which is a mobile database for iOS and Android. The last few days were incredible in the world of real estate. What I want you to keep in mind are the seven factors that determine price.

because that's really what we're talking about. We're talking about the price of real estate as it stands in the fall of 2024. If we look at the seven factors, they are the cost of ownership, which is super important. It's actually number one. Job security is also an important factor. When you look at population growth, supply, which is number five, regulatory changes, which are those government changes, global factors.

as well as replacement value versus market value. Normally, in a typical real estate cycle, we see two or three of those factors that come into play. In the last 52 days, we saw six of those factors that have affected the changes that we're seeing now. So we'll look at those factors, but we'll look at them in light of the announcements.

So we started with the first announcement, which was a rate change from the Bank of Canada on June the 5th. So that's really what started this tsunami of changes. And what started the the sentiment in the market. Once people noticed that the Bank of Canada was ready to drop the interest rate, the overnight lending rate,

Nico James-Bock (02:28.02)
for the first time in almost two years, then they started to feel a little bit of optimism. But it was skeptical optimism, as I would like to say, simply because we weren't sure how many rate drops there would be moving forward. So when we look now at the October stats, which are the most recent stats that we have available,

We see some of the results of the changes since that first announcement. So the GTA market, we saw, most importantly, the number of days, the number of months of standing inventory. So in the whole of the GTA, we're seeing 3.68 months of inventory. That has come down quite a bit from this typical...

five to six months of inventory that we saw towards the middle and end of the summer. the situation is tightening in terms of the amount of months of inventory, meaning that some of those buyers that were sitting on the fence have gotten off the fence, precipitated obviously by the rate cuts and

have decided to make a move. Also, sellers that were in the market for a very long time with their properties have also seen movement. So, some of those properties are selling quicker than they had been before the first announcement. So, if we look at what has actually happened in the market, sales are up across all types of...

of housing. So that is detached, semi-detached townhouses, condominiums, all the types of housing we're seeing an increase in sales compared to 2023, including a 51 % increase in semis, and towns, which saw the biggest increase. A 46 % increase in detached homes.

Nico James-Bock (04:49.615)
as well as a 33 % increase in condo apartment sales. So that is quite important, especially in the condo sector where things have been lagging for quite some time simply because of the amount of inventory that was sitting, not being taken up by those buyers. But now we're seeing some movement in that sector. Prices edge higher for the first time.

in six months. So we're seeing the average resale price increase 1.1 % year over year in October, representing the first annual increase since April. Okay, so we're going way back to April since we last saw a housing price increase. Prices increased 2.5 % month over month, so from September to October, which was the largest September to October increase since 2010. So as you can see, these changes are monumental.

They're very, very important as we look forward towards what we're expecting to be a very, very robust spring market. So this was partly attributed to a 55 % monthly increase in high-end home sales over $2 million. So those homes that are priced over $2 million saw the largest increase in the number of sales. Overall, average prices were up 4.4 % compared to two years ago, and 33 % higher than five years ago. So we're going in the right direction. Prices are not coming down. They are going up, albeit at a more measured pace. But now, since the last announcement, the announcement of October 23rd of the BOC, we're seeing that prices are now upticking at a faster, more accelerated rate. Freehold sellers are seeing more activity.

Condo sellers are still seeing a lag in activity because inventory levels are still so high and condo buyers are still on the sidelines waiting for more rate cuts and mortgage insurance rules to cut in. The accumulation of inventory throughout the year meant that active listings remained elevated for all housing segments in October. So we're still seeing quite a bit of inventory, but that inventory is being eaten up slowly.

Nico James-Bock (07:08.964)
rising by 24 to 26 % from 2023. Active listings for condo apartments were at their highest October level on record at 8,774 units, rising 70 % above the 10-year average. That is impressive, but if you keep in mind the amount, the demand that is in not only the condo market, but of all housing types, the demand is huge.

there are a lot of people pouring into the GTA, into the greater Toronto area and the surrounding areas. So seeing a sales level of 8,774 when there are roughly 450,000 people coming into the GTA, into Canada.

on a year-over-year basis, we see that that is not even a drop in the bucket. However, it is better than previous months. Active listings for semis, and towns were up 69 % above the 10-year average. Detached active listings were 33 % above the 10-year average. We're talking about 10-year averages simply because that is the timeframe, the typical timeframe, where you look at price appreciation or fluctuations in price.

You don't look at it over a month to month or year to year. Yes, those metrics are important, but the bigger picture is what's more important. Five years, 10 years, those are the time periods in which you look at how prices fluctuate, mostly appreciate over time. The demand indicators, as I just mentioned, saw that we are

The 10-year average for MLS sales is 7,788. In 2024, reaching to the point where we are now, just before November 1st, we saw 6,658. So we're just below the 10-year average in terms of demand, in terms of activity.

Nico James-Bock (09:27.455)
What is really important to look at when we're looking at price depreciation and how prices are affected in part by the Bank of Canada's interest rate announcements, we look at the TREB average price chart. I have all of these charts available in not only in the notes, but also

in the various social networks, my social channels. If we see that from the first announcement of a price increase, okay, so that was way back in March of 2022, we saw a dip, a precipitous dip in pricing moving forward.

The last time that we saw a significant change was when there was a price hole, an interest rate hold. That first interest rate hole came in 2023. And then we saw a series of rate holes, followed by a rate increase and then another rate hold. Moving forward, jumping forward to June 5th of 2024, that's when we saw the first interest rate reduction.

That is when we also will start to notice the change in buyer activity, seller activity, and the change in the market. Now it takes between 30 to 60 days before any of these significant changes are reflected in the data. And lo and behold, two months after June 5th, that takes us to August, we saw that prices and activity had

and uptick. Now, we are also looking at other factors. It's not just the Bank of Canada's interest rate announcement, although cost of ownership is really fundamentally the number one factor affecting price. There are other indicators, there are other factors that affect not only the Bank of Canada's decision to...

Nico James-Bock (11:52.693)
release monetary policy and make those decisions, but also buyer and seller activity. So one of those factors is the job rate, the job level, unemployment rate. So we see a higher level of unemployment. Whenever we see a higher level of unemployment, then we look at...

the Bank of Canada is most interested in seeing how they can rein the economy in by releasing its monetary policies. So we're still at an economic level in terms of jobs at a pretty high level. So October marked...

a turning point for the GTA housing market as sales increased in their fastest pace since COVID. We also saw employment levels in October at a higher level. So while sales volumes remained below average last month, it won't be long before the market returns to a more normal level of activity. With inflation back below or around the target 2%, which is where we are now,

that even the most recent inflation announcement, which was just a few days ago, showed an uptick to 2%. We were hovering around 1.6 % in the months prior. That was expected by the Bank of Canada. It was expected that there will be some bumps along the road as they lower interest rates. If we remove...

the shelter costs from that inflation figure, we are actually below 2 % still, which is the 2 % is the target rate of the Bank of Canada anyway, but we are still below the 2 % once we remove shelter costs. So the fact that we just had a slight uptick to 2 % in the past few days showing the activity in October,

Nico James-Bock (14:09.592)
That is not worrisome, however, the fact that it did go up will cause the Bank of Canada to perhaps temper their next interest rate announcement. So the next interest rate announcement is December the 11th. So while the last announcement saw a 50 basis point cut, we're now at 3.75%.

The next announcement on December 11th, most likely, for sure it will be at least a quarter percent cut. It may be another half percent cut, but because of the most recent inflation figure, the Bank of Canada may be a little bit more cautious, let's say, and put it at 25 basis points as opposed to 50 basis points.

We've talked about cost of ownership. We've talked about the job market. I want to talk just briefly about immigration and the number of people that are coming in to the GTA. The 2025 to 2027 immigration levels plan is for temporary residents.

673,650. 2025, 2026 is 516,600. 2027, 543,000. In the previous year, we saw 500,000, roughly 525,000 people come into Canada.

And you know that the majority of them will will gravitate towards the largest centers being Vancouver, Toronto, GTA being the most notable as well as Montreal and a couple of other cities. The permanent resident immigration level plan for 2025 is 395,000.

Nico James-Bock (16:28.598)
2026, it's 380,000 and in 2027, it's 365,000. So combined, we're looking at a million people coming into Canada over the next three years. When we see the sales figures for just the GTA, we're seeing 6,658 transactions.

know that that is not enough at all to meet the demand for the people that are coming in to the GTA or just to Canada in general. It's not enough. So we're going to have a different problem in 2026, a much different problem. Whereas now we're dealing with lagging inventory, high inventory levels.

a declining interest rate environment. In 2026, or end of 2025, and throughout 2026, we'll be dealing with a completely different problem. We'll be dealing with not enough inventory, demand will be much, much higher, prices will start to skyrocket. Okay? So, what does that mean for us now?

The 60 days following the holidays may see another uptick in activity as buyers waiting on the sidelines over the last couple of years jump back in. So after the most recent interest rate reduction, which was the fourth, they're waiting for the next interest rate reduction, but they're also waiting for the new mortgage rules to kick in. Those are the regulatory changes that I mentioned at the beginning as being one of the factors.

So the regulatory change, which I talked about in a previous podcast, involved mortgage insurance, first-time buyer incentives, well as the length amortization for mortgages. So we go from 25 years to 30-year amortization. That is a double-edged sword simply because obviously,

Nico James-Bock (18:46.984)
With a 30-year amortization, buyers, most buyers, are jumping up for joy because that means a lower mortgage payment per month, even though the ceiling for mortgage insurance has also increased to a million five. So obviously, payments, regardless, will be higher. But with a 30-year amortization, the payments will be relatively lower.

than what they're used to. So that is good news for those who are looking to reduce their monthly payments. The flip side is they will be paying more insurance. Like much more, much more. When you increase the amortization period, you lengthen out the time that you are having the mortgage and you're lengthening out obviously those payments. That means a huge amount of interest will be tacked on to the mortgage.

You have to decide what's most important for you as a buyer or even if you're just renewing, then you will have to take that into consideration. Following the results of the recent US election, the global factors that I was talking about, five-year Canada bond yields have risen off their October lows.

as financial markets expect, tax cuts and new tariffs imposed south of the border.

will most likely lead to higher inflation. So it remains to be seen what the effect of the most recent US election will have on our economy, also on immigration, because don't forget, there are a lot of people who are not happy with the outcome of the US election, and it remains to be seen how many of the US citizens will come into Canada, because we are obviously the...

Nico James-Bock (20:45.358)
the most likely choice for US residents. So I didn't even mention that factor when I mentioned the government plan, because the government obviously made this plan before the election. So their plan is only for permanent residents and part-time students and the like. It doesn't factor into other people who will seek

to live in Canada. So we are really running into another housing crisis in the next 18 months. So it remains to be seen how that will play out. when do you as a buyer want to buy? Now, when there's a lot of inventory, i.e. choice, reasonable prices,

many incentives and fewer buyers competing. Or do you want to wait till the spring and summer when inventory levels will be much lower, there will be more buyers, all of those that have come off the fence, competing for the same low inventory and all of the incentives that the sellers, that builders are offering now, they'll be gone. All of them.

They'll be gone. So there'll be no incentives. So when do you want to buy? When do you want to be a buyer? Don't be like most people and stay on the fence waiting for more interest rate cuts. Because what's going to happen is when it comes time for you to buy, then the cost of that real estate will have increased so much that it will have erased the benefit of a lower interest rate.

Nico James-Bock (22:44.674)
The first acceleration of headline inflation in five months may bolster a case for the Bank of Canada to reduce borrowing costs gradually. So instead of the 50 basis points, we most likely will see 25 coming in on December the 11th. The November employment report released on December the 6th is another critical data point for the central bank. So we're going to see what that will look like.

come December because that will also influence their decision on December 11th as to how much they will reduce the overnight lending rates. The unemployment rate has been steady at 6.5 % for the past two months. A meaningful rise in the jobless rate could encourage the governing council to go another 50 basis points lower at their next meeting. That and GDP figures released on November 29th because they're still more activity to come towards the end of November, will be watched very, very closely by the Bank of Canada. A 25 basis point cut in the overnight policy is in the back for sure. A 50 basis point is less likely, but also possible. Ranks will continue to go up. Prices will resume their normal acceleration after the next and final BOC announcement of 2024. And after the new mortgage insurance rules kick in, on December 15th and after we pass the hump of the holidays because typically the winter market is the slowest. Typically, it may not be that slow over this holiday season or this winter simply because if you're a savvy buyer and a savvy seller, you may want to take advantage of all of the opportunities that are in the marketplace and capitalize on that. Home ownership is a life-changing event. Don't remember, don't ever forget that. Real estate is a long-time proposition. If used properly, it becomes a forced savings plan. If used properly, and long-term should always be the goal. That is it for today's episode.

Nico James-Bock (25:04.747)
I will leave all of my contact information in the notes as well as all of the charts that I referenced during this podcast. Once again, my name is Nico James-Bock. I will be back with another episode towards the end of November and certainly leading up to the next Bank of Canada's announcement and the November stats, market stats, which will be available the first week of December. Ciao, ciao.